Powers of Attorney: General or Limited?
|
One estate planning document likely to come into play sooner rather than later, for most people is a power of attorney. Powers of attorney allow you, the principal, to name someone else to act on your behalf if you are unwilling or unable to act.
While there are several different kinds of powers of attorney, a financial POA can be used to ensure that you can still manage your bills and other money-related tasks even if you’re not the one executing on those tasks.
Powers of attorney can be given for broad financial powers or for very specific instances. It can be nerve-wracking to name someone else with broad powers to act on your behalf with regard to finances.
|
With a general power of attorney, you allow your agent to handle any financial issues in your place. This means your agent can do anything you could do, such as making gifts, setting up investments, selling assets, or transferring funds.
There are several examples of situations in which a general financial power of attorney could work well. A spouse, for example, might name their partner under a general financial power of attorney so that the partner has access to all accounts. Likewise, an adult child helping an aging parent with a range of financial tasks might need a general power of attorney to carry out those responsibilities.
However, there are several reasons to consider when it makes more sense to choose a limited or specific power of attorney. If there is no need to grant someone sweeping financial powers in your life, give yourself the peace of mind of limiting those powers to very specific circumstances. Giving someone full authority over your finances could allow them to make decisions that you did not want. Legally, if your POA was general, your agent has discretion on these matters, even if you would not have supported the actions they took.
There are three primary ways to do this: allowing specific actions, limiting the power of attorney to acting in specific period, and naming triggering events.
With specific actions in a limited power of attorney, you grant your agent the ability to carry out one or more specific tasks. For example, you might give your CPA power of attorney to pull your previous year tax returns and speak with the IRS on your behalf. You might give your real estate agent power of attorney to sign closing documents at an out-of-state real estate transaction. With these limited powers, your agent is fully capable of carrying out the task at hand, but you don’t have to worry about potential overreach. You can also use restrictions to limit what they can do, such as allowing them to help with checkbook balancing, but not making gifts.
If you know you’ll only need help during a particular time period, you can give your agent authority to act within that window. This is appropriate if you have an out-of-country trip planned, are undergoing surgery, or have some other short-term need.
Finally, triggering events are those events that must occur in order for your agent to obtain authority over the document. For example, you can declare a sudden illness as an event that enables your agent to take action.
|
While it’s still important to choose someone you trust as your power of attorney agent, you might feel more comfortable limiting their powers. Discuss your options with an experienced estate planning lawyer for more support.
|
Estate Planning for Second Marriages
|
Second marriages can present unique challenges when it comes to estate planning, particularly if you or your new spouse have children from previous marriages. Let's take a look at some of the factors, tools, and strategies to consider when planning for a second marriage.
|
Prenuptial Agreements
You've been married before, so you're a little bit older and a whole lot wiser the second (or third) time around. However, this doesn't mean you should throw caution to the wind. While it is hardly the most romantic aspect of planning a life together, many couples should at least discuss a prenuptial agreement. This is especially true if any of the following scenarios apply:
- One of you is giving up a lucrative career to get married
- You or your future spouse owns a business
- Either of you has significant assets and wants to keep them separate from marital assets
- One of you carries significant debt
- There are children from a previous marriage
If you think a prenuptial agreement makes sense in your situation, the next question is when the documents should be prepared. The sooner the better is a good rule of thumb. This will avoid the appearance of coercion, which can render some prenuptial agreements null and void. Your documents should be signed at least one month before the wedding, preferably before the invitations are sent out. In addition, you and your future spouse should each have an attorney involved in the design and review of the prenuptial agreement.
Review and Update Beneficiary Designations
Did you know that the people you have named as beneficiaries in various retirement and other accounts will generally inherit account assets even if other beneficiaries were named in your will? Consider the following situation. You got divorced, remarried, and changed your will to make your new wife your primary beneficiary.
However, if your ex-wife is still named as beneficiary in your retirement and investment accounts, she will inherit the funds, not your new wife. Beneficiary designations typically trump wills.
Fortunately, it is relatively easy to make and update beneficiary designations. When you open a retirement account, such as an IRA, the provider generally offers a beneficiary designation form within the account itself. You can name your beneficiaries when you create the account and change your beneficiaries whenever you wish (with one possible exception). As for investment and bank accounts, making beneficiary designations will likely require you to request a transfer on death form. This, too, is easily accomplished.
The exception noted above refers to certain laws governing the passing of retirement accounts to spouses. Your spouse will typically inherit your 401(k), for example, unless he or she signs a consent form waiving his or her right to it. If your ultimate goal is to leave your 401(k) to your children, your spouse will have to agree to this in writing. Designating your children as beneficiaries of your 401(k) will generally not be enough.
Protecting Children from a Previous Marriage
If all of your estate's assets are left to your new spouse, your children from a previous marriage may not be provided for in the manner you would have wanted after you pass away. Your new spouse could, upon his or her death, leave all of the assets to his or her children from a previous marriage, thereby excluding your children. Conversely, if the majority of your estate is left to your children from an earlier marriage, there may not be enough assets remaining to provide for your new spouse or any children you have together. It can be a balancing act, one that requires proper planning to ensure your wishes, and those of your new spouse, are carried out. At the very least, each spouse should have a will. Without one, intestacy laws will likely result in assets being distributed in a manner neither of you would have wanted.
A trust, or combination of trusts, is generally a better approach than a will for second marriages and blended families. One such trust, which provides an excellent form of asset protection, is called a Qualified Terminable Interest Property Trust (QTIP). A QTIP Trust can generate income for the benefit of the surviving spouse during his or her lifetime. When the surviving spouse passes away, the QTIP's assets can be distributed between mutual and prior children according to the wishes of the previously deceased spouse. In addition, if the children are young, assets from the QTIP Trust can be held in another trust, under the control of an independent trustee. This approach can prevent estate assets from falling under an ex-spouse's control. It can also protect your children's inheritances from threats like creditors, lawsuits, and even your heirs' poor decisions if they are not yet ready to manage an inheritance on their own.
|
To learn more about planning for second marriages and blended families, contact us for a personal meeting to discuss your particular needs and goals.
|
IN-PERSON SEMINARS
5 Strategies to Protect Senior Savings from Medical Costs
Thursday, July 25, 2024 • 2:00pm - 3:00pm
This easy to understand, one hour seminar will help you to learn how to protect your family and wealth.
Should you have difficulty registering, please contact us at
(703) 448-6121 or olivia@miorinilaw.com.
|
Yahne's Personal and Professional Corner
|
Olivia Pagan recently joined our firm as our new Client Relations Coordinator!
|
|
Nick Phelps recently joined our firm as a paralegal!
|
|
|
