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Digital Assets in Estate Planning & Administration

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Digital assets are a relatively recent part of everyday life but become important piece in estate planning and administration. Their role is bound to become a larger issue in Pennsylvania in 2021 with the passage of the Revised Uniform Fiduciary Access to Digital Assets Act (“RUFADAA”) during July of this year. The new law will be found in Chapter 39 of Title 20 of the Pennsylvania Consolidated Statutes in January.

Even without the statute, digital assets could not be ignored due to their increasing presence. The first step in dealing with them is to understand what they are and then to take an inventory of the ones that you have. The number and the pervasiveness of these property rights may not be realized from day to day, but a thorough inventory will demonstrate that they need to be an important part of your estate plan.

Pennsylvania’s 2021 Law Regarding Digital Assets & Fiduciaries

As have most states, Pennsylvania has passed the uniform law defining a digital asset as an electronic record in which an individual has a right or interest while not including an underlying asset or liability that is not an electronic record. As an example, an online banking account would be a digital asset, but the money in the account is a physical asset not covered by this law. However, as technology continues to advance, the possibility that the underlying asset also is a digital asset has grown. If the currency in the account is a virtual currency, such as bitcoins, then all of the relevant assets in this situation are digital in nature. In addition, these types of assets generally have associated “metadata,” which is additional information about the specific assets that are intended to make finding and using them easier.

Start with a Comprehensive Digital Asset Inventory

Generating a comprehensive list of digital assets to include in an inventory probably is the best way to begin estate planning for this category of property. The problem with this approach is that the list of possible assets continues to expand so, while comprehensive today, any list soon could become outdated. If you have an idea of the types of digital assets that exist, this will aid you in recognizing other possibilities when you creating or updating your estate plan.

Since the universe of digital assets seems to expand exponentially, you should look at information and data that are stored in electronic form on numerous devices (such as personal computers, external hard drives, and flash drives) as well as online and, increasingly, in the cloud. The following are among the common categories that you might have: emails; text messages; photos; videos; audio recordings; social media; records and other documents; websites, blogs, and domain names that belong to you; and digital wallets.

Your estate plan should deal with the different types of digital assets in an appropriate manner. You may want some to be saved and others deleted. Various accounts may need to be transferred so that they can continue to be used. If the property has a monetary value or generates revenue, then you have to look at who should possess it when you can no longer use it. Of course, digital assets may be subject to contracts or terms of service that must be reviewed when planning because they can control what can be transferred and this would be accomplished.

Importance of a Uniform Fiduciary Access to Digital Assets Act

While digital assets continue to grow in importance, people may not always have a plan in place for a time when they might require someone to step into a fiduciary role and handle these assets when are not able to do so. In the past, this has caused some difficulties with digital assets. The enactment of RUFADAA will set various default rules when these scenarios arise in Pennsylvania in the future. A look at these defaults will take place a little later in this review.

States have control over laws that establish duties of fiduciaries, who must act make decisions for the benefit of individuals for whom they are acting. States often will set the rules to follow when other provisions have not been made. Legislation, such as Pennsylvania’s RUFADAA, can play an important role by “providing consistent rules and procedures from state to state,” according to the Uniform Law Commission that drafted the Uniform Fiduciary Access to Digital Assets Act in order to achieve this objective.

While there can be, and are, some differences among states in the laws that have been passed after the uniform law for fiduciaries was drafted, they do accomplish uniformity from state to state to a great extent. One must remember that, when reading the following overview of Pennsylvania’s new law, the law in any given state with a uniform law may be similar but cannot be assumed to be identical.

The Revised Uniform Fiduciary Access to Digital Assets Act in Pennsylvania applies to a fiduciary acting under a Will or Power of Attorney; a personal representative acting on behalf of a decedent; a proceeding for the appointment of a guardian of the estate for an allegedly incapacitated individual as well as someone named as the guardian; and a trustee acting under a trust (20 Pa.C.S. Section 3903). The basic idea behind this law is that default rules are needed if you have not stated your preferences.

Limitations of the New Law’s Scope

However, these rules are limited in their scope because they cannot trump federal privacy laws, for example. This can lead to the situation involving emails in which so-called “envelope” information – which can include the identities of senders and recipients as well as time of transmission – generally is not within privacy protections while the actual content of the email is granted such protection under the uniform law. It should be noted that even the envelope is shielded from the government and law enforcement agencies.

While the default rules serve a purpose when an individual does not create a plan regarding access during incapacity or after death, the individual can deal with digital assets similarly to the way that control over tangible assets can be directed. The same legal tools may be employed, although important differences can exist.

Some New Definitions to Learn

When a “custodian” (as defined in Section 3902 of Pennsylvania’s Title 20 of its Consolidated Statutes) stores a digital asset of a “user” (i.e., a person having an account with a custodian), the custodian might offer an “online tool” that permits the user to choose a “designated recipient” to control decisions about the digital asset involved.

The definition of an “online tool” also is found in Section 3902. However, what it means probably is less obvious than other terms that have been mentioned, but it likely is the most important one to understand. Section 3902 defines it as “an electronic service provided by a custodian” allowing a “user, in an agreement distinct from the terms-of-service agreement between the custodian and user, to provide directions” regarding disclosing digital assets to third parties. Under RUFADAA, the online tool will control access, but not every custodian provides this tool and not every user takes advantage of its existence when one is offered by the custodian. Therefore, the uniform law establishes a hierarchy of other possibilities that can apply.

RUFADAA’s Hierarchy for Access After Online Tools

For example, when there is no online tool to provide direction, Section 3904(b) of Pennsylvania’s version of RUFADAA provides for the rung in the hierarchy just below online tools. At this point, the appropriate person who is named in a Will, a Trust, or a Power of Attorney as the fiduciary regarding any or all digital assets will be able to obtain the information that the user has permitted pursuant to the relevant legal document. Of course, being higher in the hierarchy, an online tool can override the terms of these legal documents.

The law also defines a third level of the hierarchy, which is the terms-of-service agreement. When the agreement does not require the user to act “affirmatively and distinctly from the user’s assent to the terms of service,” the user can provide for either of the first two instruments to “override a contrary provision” in the agreement (as noted in Section 3904(c)). Otherwise, the terms-of-service agreement can be followed to determine the rights to access and to use digital assets.

The Role & Authority of a Fiduciary under RUFADAA

The role of a fiduciary has been mentioned throughout this article. Unless the law provides authority for tools or orders, for example, that would override the powers given to a fiduciary, anyone who is named to fill this position can have considerable authority and corresponding responsibility. However, RUFADAA does provide limits. For instance, relevant terms of service cannot be ignored; additionally, a fiduciary is subject to other applicable laws, such as copyright laws.

Other limitations come from the duties of a fiduciary that include the duty of care, the duty of loyalty, and the duty of confidentiality. Also, due to potential obstacles that can delay the fiduciary’s efforts, there may be a temptation to take a short cut that, essentially, involves the impersonation of the user, which may be possible if the username and password of the user are known to the fiduciary. While it may be the easier to proceed this way, the law does not permit this tactic. Fiduciaries can use authority provided by the user in accordance with Section 3904 but can be held accountable if they go beyond this scope.

Section 3915 specifically deals with what fiduciaries can and cannot do regarding digital assets. Unless the right to a digital asset is held by a custodian or is controlled by a terms-of-service agreement, the fiduciary will have the right to access digital assets that belonged to the user as long as the fiduciary has been given authority over the assets of this individual. The fiduciary will be viewed as an authorized user of the property of a decedent (estate), settlor (trust), principal (power of attorney), or protected person (guardianship) under such circumstances. The new law also sets out what a fiduciary will need to do in order to request that an account be terminated when the time is deemed appropriate.

When a Fiduciary Seeks Content of Electronic Communications

When fiduciaries have authority that goes beyond “envelope” information, they will be faced some specific challenges. This would be a situation in which a deceased user extends the fiduciary’s power to dealing with digital assets to the actual content of electronic communications after the user’s death. This can be a very touchy area due to information that those communications may contain. If there is a custodian involved, the decedent’s personal representative, acting in a fiduciary capacity, may find that obtaining the content can be time consuming and, sometimes, extremely difficult. The decedent may have made this task easier by consenting to the release of the content of communications sent or received. Otherwise, the personal representative will have to explore asking the court that is involved to issue an Order that the information can be disclosed.

In both scenarios, the fiduciary for the estate then can request that the custodian provide the electronic communication’s content. However, the request may seem simple to make but can be much harder to implement; Section 3907 explains the steps. First, the personal representative needs to send a written request for disclosure in physical or electronic form, along with a certified copies of the death certificate and the grant of letters (either testamentary or of administration), plus a copy of the Will or other record that shows that the user consented to disclosure of the content.

Finally, the law can permit the custodian to request information that identifies the account as that of the decedent, with evidence linking the account to the user or a finding by a court specifying that the user had the account in question, that the information sought is “reasonably necessary” for the estate’s administration, and that federal privacy laws or other applicable laws would not be violated by the disclosure. As digital assets continue to proliferate, fiduciaries need to be prepared to overcome hurdles such as these in order to fulfill their duties and meet their responsibilities.

This brief look at digital assets and laws that are supposed to deal with them provides an idea that how the world’s increasing complexities since the internet age began in the mid-1980s. As technology advances, we must be ready to keep pace in life and in death. New laws have to understood, and we must attempt to keep up with additional laws that will be on the horizon. Then, the changing technological – and legal – environment must be part of the estate planning process. The last link involves fiduciaries who must be willing and able to understand what they can do and how they can do it as they are tasked with administrating estates, running trusts, implementing power of attorney, and carrying out guardianships. The future may not get any easier, but we have to be ready to face its inevitable challenges.

The Annuity: A Flexible Financial Tool

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An annuity is a flexible financial tool that can be tailored to meet your needs and, possibly, have a role in your estate plan. The ability to deliver a stream of income makes annuities popular retirement planning tools. However, due to the variety of types and the multiple structures that can be used, the right match for a person’s needs can be created for other reasons as well.

What is an Annuity?

A basic definition of this financial tool is a good place to start when considering its use in financial planning. In the Internal Revenue Service’s Publication 575 (“Pension and Annuity Income”), an annuity is defined as a contract for a series of payments to be made at regular intervals over a period of more than one full year. You can choose to have the payments be either fixed so that you receive a definite amount each time or they can be variable, fluctuating based on investment performance or other factors. These payments could be immediate (the income payments are not delayed after the annuity is created) or deferred (payments are subject to an “accumulation” phase before the “payout” phase provides the income stream).

Also, you can buy the contract on your own, but these often are offered through a person’s em­ployer. The latter are considered “qualified annuities” because they are components of tax-advantaged retirement plans. The first type of contract creates a “nonqualified” annuity as it is privately obtained from insurance companies or financial institutions, in general. There are differences in tax treatment between these two types, and the reasons for obtaining one that is nonqualified is not necessarily related to concerns regarding retirement income. The focus here will be on the nonqualified annuity purchased by an individual.

Who Are the Key “Players” in its Creation?

Some basic definitions of the main “players” when an annuity is created is a good starting point because they are important in determining the way that this tool will be set up. The annuity owner, the annuitant, and the beneficiary are the three categories essential to consider when planning.

The annuity owner purchases the contract that creates this investment. She creates the terms for the annuity with the insurance company or financial institution that issues it. Key decisions include choice of the definition of the “annuitant,” the designation of beneficiaries, and the determination of who would have the right to sell the contract.

While the annuity owner is the purchaser of the annuity, this person may not be the annuitant, who is the individual over whose life expectancy income is paid. Owners commonly name themselves as the annuitants, but there are considerations that can lead to different choices. For example, the annuity owner might want someone younger as the annuitant since the longer life expectancy leads to smaller payments that are paid over a longer period, which extends the tax liability and reduces the taxable income on a yearly basis.

Many annuities are set up with only one annuitant (a “single life” annuity), but others may have a second annuitant, who is to receive payments at regular intervals after the first annuitant’s death. These “joint and survivor” annuities often involve spouses, but this is not always true. Since the second annuitant can be considered a beneficiary, the joint and survivor annuity will considered in more detail later.

Although the periodic payments are calculated based on the annuitant’s life expectancy, the annuity owner must remember that actuarial tables do not dictate an individual’s lifespan. If the annuitant dies sooner than would be predicted, this would leave some of the assets remaining to be distributed. The annuity contract needs to include provisions for who receives what would remain in this circumstance. Beneficiaries are important for this reason.

The beneficiary is the third key “player” when the annuity is being created. Two points to bear in mind are that there can be multiple beneficiaries and that organizations can be beneficiaries. In addition, although an owner can name himself as the annuitant, he cannot be a beneficiary of his own annuity.

Unless the contract requires the naming of an irrevocable beneficiary, the owner usually can change beneficiaries. Furthermore, the owner may be wise to have multiple beneficiaries because, if there are remaining investments after an annuitant’s death, the owner probably would want to be sure that someone is alive to receive these assets.

Some Considerations regarding Beneficiaries

With no beneficiary, an annuity can go through probate or estate administration, but the assets that it still holds may be surrendered to the insurance company or financial institution that issued the contract. Therefore, even without multiple primary beneficiaries, the annuity owner should consider possible contingent beneficiaries, who receive the primary beneficiaries’ payments when the annuitant outlives these beneficiaries.

When multiple beneficiaries are included, the annuity contract can provide for the death benefits to be divided into equal shares or by specified percentages among the beneficiaries. The owner could decide to go in a different direction when choosing a beneficiary, as well. Beneficiaries do not have to be individuals, but the contract owner should consider the legal implications here.

Entities are subject to different requirements as the beneficiaries of annuities. A possible choice for the annuity owner is to assign any remaining payments to a trust. However, after the trust receives this amount, it has five years to pay out these funds. This means that spreading out the taxation based on life expectancy is not possible, while this option does exist when payments are transferred to an individual as the beneficiary.

Choices that Depend on Why You Want an Annuity

While the “players” now have been defined, this does not answer what an annuity is good for. With its flexibility as a contract between the owner and an insurance company or financial institution, there could be a number of reasons that annuities may be appealing. However, we will look at common categories (and choices) that are considered when it is being set up.

One choice is between an immediate annuity and a deferred annuity. A person could decide on a deferred annuity in which taxation is deferred. This is a benefit when retirement planning and may be a good choice if you have made the maximum contribution to a 401(K) plan or an IRA. It would not be subject to any IRS contribution limits and can create a guaranteed stream of income payments during retirement. There would be taxation at ordinary income rates at that time, and there could be annual charges from the financial institution or insurer that issued the contract. They also are likely to be subject to a 10-percent penalty from the IRS for withdrawals prior to the age of 59½.

The choice of deferred payments can be paired with either variable or fixed income payments. A deferred variable annuity is one in which the issuer of the policy places your assets in riskier investments. People with longer time horizons are better candidates for this type of annuity because they have the ability to weather market fluctuations that tend to occur during shorter investment periods. Payments from this annuity type depend on the success of the investments made with the assets that were traded to establish it.

A more conservative investor who is looking to set up guaranteed payments for a number of years after she retires probably would lean toward a deferred fixed annuity. Typical of all fixed annuities, this is not subject to market risk but instead makes regular periodic payments of specified amounts to the annuitant. It could produce earnings that compound on a tax-deferred basis, although withdrawals prior to 59½ years of age might incur the IRS’s 10-percent penalty.

Choosing an immediate annuity results is smaller periodic payments. It may appeal to someone who is or soon will be retired because the wait for the payment stream to begin is not an issue here. The tradeoff involves the acceptance of a smaller amount of guaranteed income for life or, at least, a set period of time (if a “fixed-period” annuity is chosen). Generally speaking, the owner should have a large lump sum of money to trade for a cash flow that extends into the future when creating an immediate annuity. However, there is an example below in which this asset “rule” does not hold.

This often is paired with a fixed income stream. However, the owner may be able to set up cost-of-living adjustments for the income stream over the annuity’s timeframe by paying an extra cost for this benefit.

Annuities May Help Even People of Modest Means

While an annuity can provide a stable source of financial support during retirement for many individuals, it is flexible enough to be adapted to individual circumstances. This can involve tailoring the annuity based on such variables as age, income, and net worth. Also, the amount available to invest will dictate the options that are realistic – even a modest investment might be used to create a workable annuity. Remember that reasons beyond increasing retirement income can be met through this financial instrument, and they should be examined to determine if such an investment might be desirable depending on a given situation.

For instance, one possibility that may be overlooked concerns Medical Assistance. The individual on Medical Assistance would have a relatively low income. This person might look at a single-premium immediate annuity since one often can be obtained even when there are rather limited assets available. To be used to supplement income in this situation, the annuity has to be irrevocable, actuarially sound, and – importantly – payable to the Medical Assistance agency that would be designated in Pennsylvania as the beneficiary after the recipient’s death.

Single-premium immediate annuities also could be useful for retirees who are over the age of 59½ but not yet 70½. If an individual wants to delay the payment of Social Security benefits as well as any tax-deferred distributions for as long as possible, then he or she might consider this type of annuity to provide a stream of income to realize this goal.

Increasing Usefulness by Purchasing Riders and Other Options

As has been noted previously, an annuity is a flexible tool. This flexibility can be increased when the owner purchases various riders or other options. For instance, a person might want to have a rider that provides for accelerated payouts in the event of a diagnosis of a terminal illness.

Riders and options often are added on behalf of beneficiaries. The decision to create a deferred or immediate annuity can influence this choice. With deferred annuities, beneficiaries receive the total amount contributed to the account if the annuitant dies during the accumulation phase and receive the amount remaining in this account after payments that were made to the deceased annuitant have been subtracted during the payout phase.

However, with many immediate annuities, such as a lifetime immediate income annuity, the issuing company keeps any money that remains at the annuitant’s death. The owner might purchase a refund option or a rider for a term certain regarding the annuitant’s life so that beneficiaries can get whatever remains if the annuitant dies when the option or rider would be effective.

A standard death benefit rider may be desirable when it is needed to designate beneficiaries for the annuity if the remaining funds after an annuitant’s death would be forfeited to the issuing company. This is the most basic rider of this type. Other death benefit riders can be used to affect the amount received by beneficiaries, as well. Examples include “return of premium” riders (this equals greater of the market value of the contract and the sum of all contributions minus fees and withdrawals) and “stepped-up” death benefit riders (beneficiaries receive the highest amount using the values of the contract on the anniversaries of the purchase date, with fees and withdrawals subtracted). The basic rule to remember is that a rider which increases the amount going to beneficiaries also will increase the annuity owner’s cost to add it.

A Look at Death Benefit Payout Options

Death benefit payout options involve how the benefit will be paid to beneficiaries instead of how much can be paid. Three options commonly exist for beneficiaries who are not spouses of the annuity owner. The lump-sum distribution transfers the designated funds in a single payment. A “non-qualified stretch” payout provides beneficiaries with minimum payments stretched out over their life expectancies. Finally, the five-year rule payout option allows beneficiaries to make withdrawals during a five-year period or receive the entire amount in the fifth year.

A surviving spouse who is a named beneficiary has an additional option here. The spouse could continue the annuity contract as the new owner and – if the deceased spouse was the annuitant – step into that role, taking over the stream of payments, which delays immediate tax consequences that other beneficiaries face. This is known as “spousal continuation.”

The Joint and Survivor Annuity

This leads again to consideration of “joint and survivor” annuities. It is important to remember that the beneficiary does not have to be a spouse. However, non-spouse beneficiaries again have less flexibility than a surviving spouse would have.

With a joint and survivor annuity not involving a spouse, the beneficiary has the right to receive a payment stream instead of a lump sum of what assets remain upon the death of the annuity owner. This beneficiary lacks the ability to change any terms of the annuity contract, though. As a result, any access to the annuity’s funds continue to be controlled by deceased owner’s contract.

When the surviving spouse is named as beneficiary of a joint and survivor annuity, she can transfer the contract into her name and assume all rights from the initial agreement. Based on the terms of the original contract, the spouse may have the ability to accept all remaining payments and any death benefits, as well as the right to choose beneficiaries (if the predeceasing spouse could have done so).

An Overview of the Topic of Taxation

Taxation of nonqualified annuities is complicated so what follows merely provides information to raise awareness of things to review. While employer-sponsored programs and commonly recognized retirement programs make payments that are not taxed, nonqualified annuities provide payments that are taxable income in Pennsylvania, as well as for federal income tax purposes. To the extent that the distributions that are taxable for federal income tax purposes, they also are taxable as interest income in Pennsylvania.

Nonqualified annuities must use what is termed the “general rule” for federal taxation. Under this rule, payments can consist of a tax-free part of an annuity payment that is based on the ratio of the cost of the annuity contract to the total expected return, which is the total amount that the annuitant expects to receive. The expected return is calculated from IRS life expectancy (actuarial) tables. You can look at IRS Publication 939 for more details regarding this rule.

Beneficiaries also face income taxation. They owe income tax on the difference between the principal paid into the annuity and its value at the annuitant’s death (minus the principal that was paid to fund the annuity initially). If a beneficiary receives this amount as a lump sum, then income tax is due immediately on this amount. If the payments are arranged to be spread out over time, then the taxation will be spread out as well.

When a single premium was paid for an annuity with named beneficiaries, then the annuity represents a return on an investment, which is subject to inheritance tax in Pennsylvania. It would be listed on Schedule G (Inter-Vivos Transfers and Miscellaneous Non-Probate Property) of an inheritance tax return. Notably, the $3,000 exclusion for transfers within one year of death that is mentioned in the instructions to this schedule would not apply in this situation.

When an annuity fund creates the future interests that are reported on Schedule K of the inheritance tax return, the value of the fund creating these interests is reported as part of the estate assets on whichever schedule from Schedule A through G of the tax return is appropriate. As always, you probably want to consult a tax expert about up-to-date information on the various ways that annuities can face taxation, of course.

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With the extensive varieties of annuities that are available and the ability to customize these contracts by working with annuity experts who have a solid understanding of how to tailor this financial tool to meet a client’s needs, an annuity can be fashioned for someone who possesses only modest assets to apply for this purpose. If the size of any death benefits also is a concern, the contract owner also needs a well-crafted annuity that provides for a better future for a beneficiary for whom financial protection after the owner’s death is a goal. Remember that there are numerous possibilities that can be discussed in order to make the right choice for your specific circumstances.

Life Insurance with No Beneficiary

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There are a number of reasons why a person might purchase a life insurance policy on herself. Often, the death benefit is to be used to pay for funeral expenses and other bills that the person still owed when she died. Another person should be named as the beneficiary if the policy purchased for this purpose. This person would be given responsibility for making these payments. However, life does not always go as planned.

When there is a named beneficiary, a life insurance policy is payable without having to go through the administration of an estate. When the company that issued it receives the necessary documentation, the money would be paid to this beneficiary, and, if used as planned, everything goes smoothly. Of course, the best laid plans of a deceased individual may go astray if events prior to her death do not follow the expected plan.

Often, the policy’s beneficiary is a child of the owner of the policy. This generally would mean the odds that the intended person will receive the proceeds. As long as the beneficiary uses the proceeds as the deceased parent requested, the plan will be a success. Then again, the odds may be in favor of this happening, but life does not promise, let alone guarantee, that something won’t go against the odds.

An elderly parent generally will outlive an adult child. When the adult child is the named beneficiary of the older parent’s life insurance policy, there could be a major problem if the child ends up dying first. Other variables of life may wreak havoc on what was expected. This example is based on a situation that occurred and is not all that rare. The other parent already had died. There were two adult sons, although only one was a beneficiary on the policy. He also had three children. When he died before his mother, her straightforward idea began to get complex and unworkable.

The Importance of Contingent Beneficiaries

After the son died, the policy’s contingent beneficiaries would be the crucial parties if the plan is to be implemented. A contingent beneficiary replaces a beneficiary who is unable to perform in this capacity. Sometimes, there is no contingent beneficiary, which will lead to potentially unintended consequences. The first problem is that the benefits remain to be paid. If no one was named to receive them under the new circumstances, the death benefits are paid by default to the decedent’s estate.

Since no Will existed, after the estate was opened and the policy was found by the estate’s personal representative who did then does what the insurer requires to prove that the named beneficiary could receive the death benefits while he (the other son) had the right to collect the asset on the estate’s behalf, the money ultimately would be paid to the parent’s estate. Being that she lived and died in Pennsylvania, the death benefits now must pass according to the intestacy laws of Pennsylvania – this result diverged considerably from what was intended.

Because the proceeds passed through the estate, any distribution and use would be delayed and may not follow the original plan that had seemed so carefully constructed. This could have been avoided, in part, by naming a contingent beneficiary in case the first beneficiary could not receive the death benefits. This was not done when the policy was purchased, and the mother did not update her beneficiaries after the son chosen to get them had died. Either way would have avoided payment to the estate. Also, if either path was taken, the likelihood that the policy’s benefits would be used as planned would have been better than the intestate distribution could promise since the parent had not discussed how the proceeds were to be used with anyone other than the original beneficiary.

Taxation always is concern and often is a reason that people pursue so-called nonprobate methods to distribute property. Life insurance proceeds that are paid to the beneficiary named in the policy have not been subject to Pennsylvania inheritance tax. However, after December 13, 1982, even when a policy’s proceeds are paid to the estate instead of a beneficiary, no inheritance tax is assessed. 72 P.S. § 9111(d). With this not being an issue, the question of what happens to the insurance proceeds that now were part of the estate is the main one in need of an answer.

The life insurance benefits now are another asset of the mother’s estate. The beneficiary designation is of no consequence because the one brother who was named already is dead. Since the mother had no Will at her death, Pennsylvania’s intestacy laws will determine what happens to the benefits after the insurance company has paid them to her estate.

Who Inherits if There is No Beneficiary?

The law is found in Title 20 of the Pennsylvania Consolidated Statutes in Chapter 21, “Intestate Succession.” Sections 2103 and 2104 provide the answers. The first section applies to an estate, such as this one, in which there is no surviving spouse. It provides the order in which property will pass based on the relationship to the person who has died. The mother’s issue are at the top of the list in intestacy so all the insurance proceeds will be distributed to those who meet the definition of issue. The surviving son qualifies here, but you have to look at the next section (“Rules of succession”) to determine his son as well as the shares for anyone else.

“Issue” includes siblings and, when applicable, their descendants. This is applicable in the current case. The brothers would have been in the same degree of consanguinity because they directly descended from the same ancestor – their mother. However, with only one son surviving, the number of equal shares is defined at this level of survivorship since he is the closest surviving relative. Since there were two sons, this means that there will be two equal shares. The surviving son will receive half of the benefits from the life insurance policy now. It is worth noting that this section contains a survivorship clause – anyone who would inherit under Pennsylvania’s laws of intestate succession must outlive the decedent by five days. He did, so this becomes a meaningless footnote here.

There still is the second one-half share of the insurance proceeds to be distributed. The statute dictates that this share passes by representation to the three children of the deceased brother, which gives each an equal share of one third of what their father would have received under the laws of intestacy. In the end, by not naming a contingent beneficiary in the life insurance policy, the mother altered her intended plan to a considerable extent. Instead of one person receiving all of the proceeds from the policy, her estate will distribute half of the benefits to her surviving son and a one-sixth share to each of the surviving children of the deceased son, who was supposed to receive all of the proceeds when the life insurance policy was purchased by the mother.

This situation provides a good lesson regarding any estate planning. When circumstances change, your plan may not represent your intentions. If the resulting change to your estate plan is significant, then you need to revise that plan as soon as you can because you’ll never know when it had to be implemented.

Elder Law and Estate Planning

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Elder law and estate planning are not two terms for the same area of law. However, they are related. Estate planning is an important part of the work that an elder law attorney does. At the same time, the attorney generally takes a broader, more holistic approach in an elder law practice.

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ase the National Elder Law Foundation’s definition of elder law, this area of practice involves counseling and representing of older persons and their representatives in matters regarding the legal aspects of health-care and long-term care (LTC) planning. Additionally, the attorney educates clients about and helps them to obtain public benefits. The definition includes discussing the possible need for surrogate decision-making while addressing the issue of legal capacity. The attorney and client also need to talk about the conservation and, ultimately, disposition and administration of estates. After the consideration of tax consequences, the attorney looks at how to implement the client’s decisions about these estate issues.

As the diversity within the definition suggests, the elder law attorney needs good resources in numerous non-legal fields. This may include access to medical professionals, financial advisors, and social workers, for example. The legal goals often cannot be achieved without first addressing non-legal issues. The lawyer needs to deal with them successfully for the overall result to be positive. Often, topics include resolving family conflicts, understanding a client’s illness, and adapting to any consequences of those health problems.

Elder law is a challenging legal area. To help the client, an attorney must focus on aging, disability, and incapacity, as well as the difficulties that a person faces with each problem. Then, the attorney has to assist the client in creating a plan to deal with all of these. They need to work together to plan for health-care issues. Meanwhile, they have to look at long-term care since the client may require this at some point. The attorney must review obstacles to LTC financing and look for ways around these. In addition, barriers to essential assistance and services will exist. To overcome these, the attorney works with the client and family members to find solutions. Due to all of the issues that an individual may face, this practice area involves a powerful need for comprehensive estate planning.

In general, the elderly have a greater sense of urgency to prepare documents that are necessary due to serious illness or death (as with a Last Will and Testament). At the same time, attorneys in elder law often have clients who have special needs caused by disabling diseases. This makes sense because the issues often are similar. Both need to deal with possible incapacity in the relatively future while many younger people in good health may not view these matters as important at the moment. At this point, I will look at the elder law issues that have been raised from the perspective of individuals with special needs since they have to plan for the same types of problems regardless of age.

 

Special Needs Planning and Multiple Sclerosis

 

The National Academy of Elder Law Attorneys (NAELA) teamed up with the National Multiple Sclerosis Society and the Stetson University College of Law to prepare a video series for people with MS. This disease tends to strike people between the ages of 20 and 50. In addition, women get MS at a much higher rate than men do. Its progression is not predictable. However, MS often becomes disabling over time because it attacks a person’s central nervous system. This results in the flow of information within the brain, and between the brain and body, being disrupted.

Since the disease’s progression is unpredictable, the individual diagnosed with MS and family members need to look at the complex legal and other issues that may arise. To do this, they should seek the assistance of an attorney with experience in elder law and special needs law.

These videos focus on planning for possible incapacity and accessing LTC benefits. As a result, they can help not only people with special needs, such as those caused by MS, but also the elderly. In addition, anyone interested in an introduction to various estate planning documents can find benefit.

 

The Video Series on MS – Looking at Legal Issues & Plans

 

The five videos in this series are:

  • How Elder & Special Needs Law Attorneys Can Help People Diagnosed with MS (Presented by Craig C. Reaves, CELA, Fellow, CAP)
  • Legal and Care Planning for Younger People with MS (Presented by Robert Brogan, CELA, CAP)
  • Coordinating Attendant Care and Available Resources (Presented by Stephen Dale, Esq., LLM)
  • Family Law and Divorce: When a Partner Has MS (Presented by Patricia E. Kefalas Dudek, Esq., CAP, Fellow)
  • Property and Health Care Decision-Making Agents: An Overview (Presented by Mary Alice Jackson, Esq., Fellow)

 

I have placed two of the videos dealing with the types of issues that I mentioned earlier below. They also discuss a number of legal documents that are useful when these issues arise. The presenters review various kinds of trusts and the purposes they serve. Additionally, they talk about medical and financial powers of attorney, which can benefit everyone. A person with MS understands some of these benefits more than the average person. For example, powers of attorney can make a guardianship, which strips a person of at least some civil rights, unnecessary. While a debilitating disease may make the possibility of a guardianship seem more real, anyone can be in an accident that results in incapacity and the need for a substitute decision-maker. Powers of attorney fill the void here.

These two videos also look at other tools for planning for events that can occur during anyone’s life at some point.  This includes what commonly is called a Living Will in Pennsylvania. A Living Will permits you to make end-of-life choices while you still are able express your preferences.

This video provides an overview of Property and Health Care Decision-Making Agents:

I also included the video about Legal and Care Planning for Younger People with MS:

 

 

NAELA: A Useful Resource for Elder Law & Special Needs Law

 

All of the videos in this series can be viewed on the NAELA website. In addition, you can find a lot of other useful elder law materials by visiting this website at www.NAELA.org.

This video series highlights some of the benefits provided by attorneys experienced in elder law and special needs law. As the population in Pennsylvania and elsewhere ages, people increasingly will need attorneys who are well versed in elder law and special needs law. An attorney who can help you handle the often overlapping legal, medical, and financial decisions as you plan for an uncertain future can be very helpful. The National Academy of Elder Law Attorneys is a good source for this legal assistance. Remember that estate planning is a major part of elder law so NAELA attorneys can be good resources in this area. They also can provide information about long-term care options and how to access these services. Considering what you may need and want whenever you might become incapacitated is important. Having a documented plan in place to deal with this possibility is essential.

A Self-Funded Special Needs Trust, an Exception for Medicaid (MA) & SSI Eligibility

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In 1993, Congress passed a law (often called OBRA ’93) that allows some disabled individuals to be the beneficiaries of what is known as “self-funded” Special Needs Trust (SNT) under the Social Security Act. This is set out in Title 42 of Section 1396p(d)(4(A) of the U.S. Code. Since the law can be somewhat confusing, the Social Security Administration (SSA) developed a review process with 8 steps when its staff evaluates a trust under this law.

In terms of terminology, we are looking at self-funded Special Needs Trusts. Another type of trust is called a “supplemental needs” trust. This developed from cases, not specific legislation. While OBRA ’93 permitted assets of disabled individuals to be used in certain types of trusts, a supplemental needs trust has created by a third party with the assets of the third party. However, we only look at self-funded SNTs here.

In reviewing the steps used by the SSA, these also provide a practical way to quickly determine if a person who might meet SSA’s definition of disability could be the beneficiary of a self-funded SNT. If it survives this quick test, then you still must pay attention to the remaining details for SNTs. After all, a person with the trust generally can’t benefit if leads to ineligibility for government benefits based on need, such as Supplemental Security Income (SSI) and Medicaid (generally known as Medical Assistance, or MA, in Pennsylvania).

The first step looks at the age of the disabled individual. A Special Needs Trust that holds the assets of a disabled person must be created before the person reaches 65. The trust can continue after the individual’s 65th birthday, but it must exist as a self-funded SNT before that date.

Next, the SSA focuses on the source of the trust’s assets. There must be assets in the Special Needs Trust that a person meeting the SSI definition for disability, which generally involves a medical impairment that prevents the person from engaging in full-time employment for a period expected to last at least 12 consecutive months. If not (on either count), a self-funded SNT cannot exist.

The third requirement of the SSA is that the person meeting the definition of “disabled” is the trust’s only beneficiary. This does not mean that the trustee can’t make direct payments to third parties if these do not pay for anything defined as food or shelter by the SSA. However, the trust can’t give benefits to third parties during the disabled person’s life. Also, the trust can’t be terminated during the individual’s life (unless the trust’s property – often called the corpus or principal – could be paid only to the states or creditors for goods or services that were provided by them to the disabled person.

In addition, Social Security reviews how the trust was created in the fourth step of its evaluation. Specifically, only the following can place the person’s assets into the trust: a parent, grandparent, a legal guardian, or a court. The disabled individual cannot place assets into the self-funded Special Needs Trust. However, parents and grandparents may be allowed use a small amount of their money to start the trust, after which the disabled person (or a person with legal authority, such as via a Power of Attorney, to exercise control over the disabled person’s assets) may transfer property into the trust. As for a court, it must issue an order creating the trust; anything less (like merely stating approval of the trust) is insufficient. Basically, action by an appropriate party must be taken to start  the SNT. The reason that the agent under a Power of Attorney isn’t an appropriate party is that the disabled person gave the agent permission to act  here and has control over the existence of the relationship.

The fifth step in establishing the self-funded Special Needs Trust is that the document must require reimbursement from the trust after the disabled beneficiary’s death to all states that made Medicaid payments for the individual. No other debts can be paid until all of these amounts have been repaid. This is why these trusts are called payback trusts, with the repayment not limited to Medicaid received during a specific timeframe in the trust document.

If the criteria in the first five steps are not met, this still could be a “pooled” trust, which was created in the same legislation (OBRA ’93). This bears some similarity to a bank account controlled by the bank. However, the strengths and weaknesses of this type of trust account merit more detailed explanation than can be given in a paragraph. What is probably most notable is that the disabled person can work with a nonprofit organization to set up the pooled trust account. For now, it should be noted that the SSA goes to the eighth step when a pooled trust might be involved.

As noted in the first step, assets of the disabled person must be in the trust before the person’s 65th birthday. The sixth step looks at additions to the Special Needs Trust after the person has reached 65. In general, the regular SSI and MA rules apply so, after the month of the 犀利士
addition, it will count as a resource. In the month that it was placed in the trust, it might be considered income or a resource, depending how it became part of the trust. Annuity and support payments can be exceptions to the rule if there was a right to receive payments prior to age 65, with the rights to payments assigned irrevocably to the SNT before that age.

There is no issue regarding increases in the principal of the self-funded Special Needs Trust due to assets of the disabled individual placed in the trust before turning 65. Interest, dividends, and any other earnings from that part of the trust are not considered additions.

This leads to Step 7, which focuses on assets in the trust before the individual reached 65. If someone has legal authority to revoke or terminate the trust and any of its funds are then available for food or shelter needs, the principal is considered a resource for SSI eligibility. Also, when a person can use the principal for support and/or maintenance, it again is a resource. Finally, when the disabled beneficiary has an interest that can be sold, this person has a resource. The SSA provides the example of an individual who has the right to monthly payments. Unless a spendthrift provision is in the trust, the right to these payments could be sold for a lump sum that also would count as a resource.

Step 8 does not involve the self-funded Special Needs Trust because it looks at assets placed in trust after 65. It looks at whether these assets qualify as a pooled trust. Since this is a different exception to SSI and MA rules from OBRA ’93, it won’t be examined here. However, it is important to remember that this other exception is available if an SNT is no longer a possibility.

The Financial Power of Attorney after Act 95 of 2014

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The Pennsylvania Legislature saw a need to protect individuals from the abusive use of powers by Agents under Powers of Attorney. Act 95 of 2014 was the result. Most of the new law took effect at the beginning of this year. If you had a Power of Attorney (POA) drafted after January 1st or want to get a Power of Attorney so that your financial affairs could proceed even if you no longer could handle them, then you must make sure it complies with Act 95’s changes. Generally, an older POA remains valid. However, due to the changes involving various powers, you might be wise to discuss your current and future concerns with an attorney to see if a new Power of Attorney might benefit you. Also, while you could go to the internet to attempt to draft a POA, remember that Act 95 made major revisions to the law, with the added complexities needing review during the drafting process – a do-it-yourself POA found on a website is not exempt from the new requirements but may not include them.

Unlike POAs focused on medical issues, a financial Power of Attorney in Pennsylvania should include the statutory Notice signed by the Principal, for whom the POA exists, and requires an Acknowledgment for all Agents named by the Principal regarding their duties when acting in this capacity. Both forms changed at the beginning of 2015. The Notice has been revised and must include only capital letters. The Acknowledgment experienced a greater overhaul. While the statutory example was altered, the actual wording now can deviate from the example. For example, you could decide your Agent doesn’t have the duty to keep assets separate from yours. Although this usually is not a good decision, Act 95 allows the waiver of this duty by the Principal, which means that it would be deleted from the Acknowledgment. Before the new law, this duty was mandatory and had to be in the Acknowledgment.

Another change with the financial Power of Attorney is what legal requirements exist for its execution. Pennsylvania only required the date and Principal’s signature at the end. No witnesses were needed. Now, you need two witnesses (neither of whom is an Agent in the POA) as well as a Notary’s involvement. Also, none of these three roles can be filled by the same person so, while only the Principal was needed prior to this year, three additional people now are required to have a valid Power of Attorney. This is stricter than what other estate-planning tools, such as a Will, require for execution. It has been suggested that the reason for this is due to the impact on the Principal being greater under the POA (since the person still is alive) than it would be with a Will, which takes effect after death. Regardless of the reason, you have to be aware of this if you want your POA to be recognized in Pennsylvania.

Those are important changes, but the usefulness in estate planning of the Power of Attorney is affected elsewhere in Act 95. Due to sweeping changes introduced by this law, not all can be covered here, but some major ones follow.

“Reasonable expectations” have been added. An Agent should act according to your reasonable expectations “to the extent actually known.” This may seem a bit vague since the Agent has to know your reasonable expectations in any area that you granted the Agent authority to act. To ensure your Agent knows what you expect, you have to include these expectations in the Power of Attorney — they aren’t defined elsewhere, and only you can define your reasonable expectations. Agents also must act loyally for the Principal’s benefit. What if acting loyally works against the benefit of the Principal? The drafting of the POA is important in defining terms and duties for guidance and to avoid “what if” scenarios that could arise under the new law.

Duties of the Agent have been touched upon, but they are tied to powers given in the Power of Attorney. Again, Act 95 has made numerous changes in the law. While the Power of Attorney is a general grant of authority for an Agent to act, eight powers (so-called “hot powers”) must be explicitly listed to be available. These, generally, are concerned with estate-planning issues. They include: creating, amending, revoking, or terminating an inter vivos trust; making a gift; creating or changing survivorship rights; creating or changing a beneficiary designation; delegating authority granted under the Power of Attorney; waiving the Principal’s right to be a beneficiary of a joint and survivor annuity, including a retirement plan’s survivor benefit; exercising fiduciary powers the Principal can delegate; and disclaiming property, including powers of appointment.

There also are 22 statutory “short-form” powers that can be in the Power of Attorney. These are familiar to anyone who has worked with the prior law. To a large extent, they are estate-planning tools. However, two of them involve healthcare issues and probably should be in a separate medical POA since Act 95 focuses on financial issues. Also, the power to make “limited” gifts is noted while the power to make gifts is a hot power. They are different because a limited gift cannot exceed the annual gift-tax exclusion ($14,000 currently) while the other power is not limited. Although short-form powers are not as powerful as hot powers regarding changes they can make, they still have value when it comes to estate planning. Beyond estate planning, the Power of Attorney could handle a related topic: long-term care planning. Knowing the Principal’s objectives is crucial in drafting a document tailored around powers needed to achieve those objectives.

This gives a basic view of various issues that Act 95 has introduced into the drafting of a financial Power of Attorney. Much more can be said and written about this topic. This, ultimately, is the main point. Sweeping changes have been made, and there is no way one POA size can fit all. Before you decide to execute a Power of Attorney, you must know the options and their possible implications. As these implications can be substantial, you should consider consulting an attorney who works in this area of law because what may have seemed simple to do previously is now a complex web of possibilities to explore to find what fits your needs and wishes. Such is the state of the Power of Attorney in Pennsylvania after the advent of Act 95 of 2014.

Medicaid Estate Recovery – Questions

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I looked at the basics of Medicaid Estate Recovery in Pennsylvania previously in the first part of this series, but there are other matters that may come into play and should be kept in mind whenever the possibility of estate recovery exists. One involves an objective of estate planning (namely, to transfer wealth to those of one’s own choosing), which estate recovery can hinder. Another issue concerns the need to protect a claim subject to estate recovery, including who can be held responsible for not doing so. A third topic of potential interest is the ability of the Department of Public Welfare (DPW) to postpone or waive its claim and the implications of these paths.

When someone may become subject to Medicaid Estate Recovery, how does this impact estate planning?

For anyone who was at least 55 years old and was on Medical Assistance (as Medicaid is called in Pennsylvania) after August 15, 1994, estate recovery is possible if the individual received nursing facility services, home and community based services, and related hospital and prescription drug services, as was noted in the previous post. This means that any estate planning must be handled prior to that point in time in order to avoid possible Medicaid Estate Recovery.

You need to focus on assets that DPW targets – in general, these are assets that are part of the “probate estate.” If something does not have to go through the process of estate administration in order for a beneficiary to become the new owner, then it should be free from estate recovery. A life insurance policy that names a beneficiary is an example. For a house to avoid estate administration and also to avoid estate recovery, you must plan carefully. If you are over 55 and receiving Medical Assistance (MA), you have options as long as you do not receive it for the three types of services mentioned above. You would need a deed that makes the property jointly owned by you and your beneficiary with rights of survivorship or that transfers the property entirely to the other individual.

(As an aside, if you would die within one year of this transfer, the entire value of the house would be subject to inheritance tax. In fact, if you transfer things that you own to an individual that have a total value exceeding $3000 during the year of your death, then Pennsylvania’s inheritance tax will apply.)

If probate property that is subject to Medicaid Estate Recovery is transferred, can anyone be held liable and forced to pay DPW’s claim?

The decedent’s personal representative – the estate’s executor or administrator (when there is no Will) — has a duty to make sure that DPW’s claim is paid after creditors whose claims have higher priority have been paid. Therefore, the personal representative will be personally liable for DPW’s claim when property subject to that claim is transferred without valuable and adequate consideration to an heir or anyone else with a claim of lower priority if DPW has not been paid when the transfer occurs. “Valuable and adequate consideration” is defined by DPW as a sale of property at fair market value by the estate’s personal representative to a party who is unrelated to the decedent or the personal representative. If this amount is obtained, then the personal representative would not be liable for payment of DPW’s claim.

As will be discussed briefly, DPW may postpone its claim under certain circumstances. However, the personal representative remains liable for transfers during this period. The personal representative must take steps to protect DPW’s claim. This may require a mortgage or other recorded encumbrance to be placed against real property in the decedent’s 威而鋼
estate on behalf of DPW. There also are provisions for perfected security interests to be placed against items of personal property worth more than $10,000 as well as cash (or cash equivalents such as securities) to have a total value exceeding $50,000 to be placed in trust, with DPW receiving the remainder at the trust’s termination up to the amount of its claim.

In addition, a person who receives property subject to a Medicaid Estate Recovery claim by DPW will be liable if the property’s fair market value was not paid for it. The transferee’s liability is the difference between the property’s fair market value and the amount of money received by the estate for the property. This person also must protect DPW’s claim during a period of postponement so that it is paid when the period ends.

When will a claim under the Medicaid Estate Recovery Program be postponed or waived?

Postponements can be requested under certain circumstances. For example, DPW will wait to collect its claim against a decedent’s home when any of the following reside there: a surviving spouse; a child who is “totally and permanently disabled” (as defined by the Supplemental Security Income (SSI) program); a surviving child is under the age of 21; or a sibling who has lived in the home at least one year before the death of the MA recipient and who also owns an equity interest in the property. When the last of these individuals has died, transferred the property, or left it, the postponement period ends, and the Medicaid Estate Recovery claim must be paid.

Undue hardship waivers are more complex so what follows is not an all-encompassing review. However, the most important difference between these and postponements is that a waiver means that DPW has relinquished its right to collect its claim against the estate forever.

The most common type of waiver probably involves a person who meets certain criteria relating to the primary residence of the decedent. First, the person must have continuously resided in the home for at least 2 years immediately before the decedent started to receive nursing facility services or for at least 2 years during which MA-funded home and community based services were received. Also, the person cannot have an alternative permanent residence. The third requirement is that the person provided care or support to the decedent for at least 2 years while MA-funded home and community based services were received by the decedent or for at least 2 years before the decedent received nursing home services and while the decedent needed care or support to remain at home for those two years.

Other sources of waivers involve income-producing assets that were the primary source of household income, without which gross family income would be less than 250% of the Federal poverty guideline — family farms and businesses are examples; payment of necessary and reasonable expenses to maintain the home while the decedent was receiving home and community based services or while the home was vacant when the decedent was in a nursing facility; and the administered estate of the decedent had a gross value not greater than $2,400 and  there is an heir.

 

Medicaid Estate Recovery is a complex area of law, and answers to these questions only touch its surface. For all of the needed details, you should contact an attorney familiar with this subject to protect the interests of all concerned.

When is a Power of Attorney in Effect?(Pt 2)

Alberts Law, Estate Planning, Topics of Interest, ,

In the previous post, I took a brief look at various powers of attorney found in Pennsylvania’s laws and discussed how and when they take effect. However, the issue of timing regarding when a financial power of attorney can be used often is something that the principal who would be giving the power wants to address in the document due to concerns such as loss of control and possible abuse. The topic of timing in combination with varied reasons for having a financial power of attorney is the subject of the second part of this discussion of powers of attorney in Pennsylvania.

As your power of attorney is being drafted, you and the attorney should discuss its focus or purpose as well as how to use specific powers to achieve this. There are situations that can be handled by a more limited power of attorney. This limitation may mean that it only can be used by your agent for specific periods of time. If not specified, Pennsylvania law presumes that a power of attorney is durable, however.

The term “durable” means that it is in effect and, technically, could be used by your agent from the moment when it is executed (or, to put it more simply, when it is signed). People often feel that this means that they are giving away the authority to handle financial matters, even though they are capable of doing so, and worry about the power being abused. This, in turn, can spark interest in limiting when the document will be effective. Such restrictions could make sense, depending on the purpose for this document.

A non-durable power of attorney can be used by your agent only when you are not incapacitated. This generally is when you least need to have one. As an instrument of estate planning, this would have little use because you would not need someone handling financial affairs to carry out the objectives of your estate plan while you are capable of doing so.

However, a non-durable power of attorney can be useful to give someone the authority to handle a transaction when you are not able to be present for some reason. The non-durability combined with the limited scope (for example, the authorization for an agent to complete the sale of a vehicle) can make this useful because, in the example, you can sell the vehicle even though you cannot be present and the document only exists until the specific transaction is accomplished.

In other scenarios, a durable power of attorney makes more sense. You might not like the sound of giving your agent the power to handle your banking transactions or to sell your real property (which might mean the house in which you are living). However, if you are handling your affairs, it would not be that easy for someone to take over. If the agent would try to do this, you can put an end to the attempt by revoking the power of attorney, which is easy to do. An agent who misuses this power can be subject to civil and criminal penalties, and you are likely to know if your agent is making such attempts.

For example, to sell your house, the agent would have to record the original of the document in the appropriate office in the county in which the property is located and would have to show the property to prospective buyers. Meanwhile, monthly statements from your financial institution would reveal any problems involving transactions that you did not authorize.

Also, your choice of the agent should reduce the likelihood of abuse of power – you need to trust the person you name as your agent. While this is no guarantee, you should not name someone as your agent if you have doubts about his or her trustworthiness. Instead, this would be a situation in which you might want to wait to get a power of attorney.

Some people prefer to have a “springing” power of attorney, which springs into effect when a specified event occurs. Often, the event involves the person becoming disabled or incapacitated because this is when someone would be needed to handle financial and other affairs. The potential for problems exists because you need a well-defined point at which the power of attorney springs into effect.

Disability and incapacity should be determined by medical professionals. There may not be a doctor available when this occurs so there could be a lag in time before someone can act as your agent. There also could be difficulty in getting a doctor to sign an affidavit acknowledging your condition. Then, if you no longer are disabled or incapacitated, you should get another affidavit stating this and making the springing power ineffective again.

In the end, a durable power of attorney usually is the best choice. The power is least likely to be abused when you can handle your own affairs, and you can easily revoke it during this time. Periods of disability or incapacity are when the power of attorney has the greatest potential for abuse, but the likelihood is limited when you take the time to choose someone you trust to be your agent. Finally, a financial power of attorney must have an acknowledgment signed by your agent detailing the responsibilities of an agent and noting the consequences of ignoring them, which helps to reduce any temptation that might exist.

When Is a Power of Attorney in Effect?(Pt 1)

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A Power of Attorney can be useful for numerous reasons. For instance, the importance of a financial power of attorney often is seen in estate planning but can come into play for other purposes as well. For this reason, it is the prime focus here due to the potential impact of its use, which makes many people reluctant to make this power durable (which will be defined below). Of course, there are reasons beyond financial matters for needing a power of attorney. Pennsylvania has statutes that encompass other types of powers of attorney and that address when these powers are in effect.

For example, under Pennsylvania law, a “mental-health power of attorney” gives you the opportunity to choose someone (known as your “agent”) to make a wide range of treatment decision if you are experiencing a mental-health crisis. However, the same law also limits the lifespan of this document to two years from the date that you sign it into effect (unless you revoke it sooner or it is in effect when the two-year mark is reached). Within this time period, this power of attorney can be used by your agent when an attending physician determines that you are not capable of making decisions regarding mental-health treatment. When the attending physician decides that you can make these decisions once again, then your agent ceases to have authority.

A “health care power of attorney” is more common and often is combined with the financial power of attorney in an estate plan. Pennsylvania has a set of laws focusing solely on this legal tool and defining when it is legally relevant. A health care power of attorney is valid until you revoke it, unless you have specified a time when this document no longer is valid. It should be noted that, while it may be valid, this does not mean that it can be used by your agent named in the power of attorney at all times. Instead, it only becomes effective when the attending physician finds that you lack capacity to make these decisions and ceases to have power when the attending doctor finds that you are able to make health care decisions again.

Meanwhile, powers of attorney that deal with financial matters tend to have more variations and need to be drafted carefully to meet your objectives, leading to careful consideration of how and when they can be used. In the list of statutory powers regarding a power of attorney, you currently will find 22 powers, of which 19 are financial in nature. These range from transactions involving tangible personal property to investments in stocks, bonds, and other securities to disclaiming of an inheritance.

The potential scope and consequences of these powers can cause a principal, who is the person giving authority to her or his agent, to be hesitant to want a power of attorney in the first place. This is when you need to look at the flexibility of this document to see if one can be drafted to meet your needs and protect your peace of mind.  In the next post, a closer look at financial powers of attorney and when you might want them to be in effect for your agent’s potential use will be undertaken.

Changes in Your Family? Time to Revisit Your Estate Plan

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After you get married, you might decide that you need an estate plan. Actually, an estate plan is important even if you aren’t married. Of course, whenever your circumstances change, you should revisit this plan to make sure it fits your current situation. Remember that an estate plan never should be viewed as if it were etched in stone. With major life changes, you must realize that your estate plan reflects a time that no longer exists, potentially making it more a part of your history than your future. We will focus on a Will that was drafted after you got married, only to be followed by a divorce, then remarriage, and additions (by birth or adoption) to your family after the second marriage.

When you have been divorced, you may receive a property distribution of assets that were acquired during the marriage that has ended. If some of the property is in investment funds or insurance policies or similar financial tools, you can name beneficiaries to receive these after your death. They do not go through the probate process (if you have a Will in place when you die) or estate administration (when you die without a Will). Instead, these go directly to the beneficiaries whom you chose. As a result, if you do not change your beneficiaries after you remarry, these assets are seen as separate from the property that would be in your second marital estate. They pass according to your previous designation of beneficiaries — you need to change your estate plan if you want a different result.

However, there are situations in which Pennsylvania law makes changes in your Will, even if you do nothing. For example, after a divorce, any provision regarding your ex-spouse no longer has legal effect so he or she would no longer be in your Will unless your estate plan incorporates language in your Will that divorce won’t alter that Will. Generally, the property that would have gone to the former spouse under the original Will becomes part of your intestate estate, to be distributed to your heirs as if you died without any Will at all. If you reside in Pennsylvania when you die, then Pennsylvania’s laws of intestate succession determine who receives what portions of this property — effectively, this becomes part of your estate plan since you didn’t revisit and revise it while you could.

Of course, you may remarry at some point, and — once again — the Pennsylvania legislature has made some decisions on your behalf, assuming that you have not changed your initial Will. The new spouse is in a position to receive a spouse’s intestate share that applies to your circumstances (such as whether there are stepchildren, for example).

However, if you revised your estate plan after your remarriage and gave a bigger share to your new spouse than she or he would receive under Pennsylvania intestacy law, then the surviving spouse gets the larger share. Some people have a new Will drafted that, through its language and the circumstances at the time that it was created, was made in contemplation of a marriage that actually taken place at that point. Then, the spouse, once the marriage occurs, would receive the share that your estate plan dictated. There is a potential exception  to this because the surviving spouse under Pennsylvania law can elect against the Will, in which case this person might be able to inherit approximately one third of your estate.

Assuming that your new relationship yields new children, whether by birth or adoption, this can impact on your existing estate plan. For example, unless the Will clearly demonstrates that these kids were omitted from your estate plan intentionally, they should receive their intestate share, as defined by Pennsylvania law, of your remaining estate after the surviving spouse’s share is deducted from the estate. The remaining estate would be equal to the shares that the children would have received if you had died unmarried and had no Will.

This can get quite complicated, obviously. In addition, many people have other things on the agenda when they have an estate plan created. People often seek to limit the so-called death taxes owed to state and federal governments. You could take the chance that your original estate plan is good enough and never give it a second thought. If this is your approach, then the intestacy laws are ready to fill any gaps that may have developed during the changes that have occurred. However, situations and the goals of your estate plan can change over the course of a lifetime. While considering your mortality is not the most enjoyable experience, you can take comfort in knowing that you will have an estate plan that meets the needs of those whom you want to take care of even when you no longer are around to do so.