A power of attorney can be a vital financial and estate planning document. However, it can be a double edged sword! Let’s take a close look at this important document.
A power of attorney (POA) is simply a grant of authority or power by one person to another. The person signing or granting the POA is called the “principal” or the “grantor.” The person to whom the POA is given is called the “attorney-in-fact” or the “agent.” For purposes of our present discussion, we will deal only with financial powers of attorney. In a future column we will address healthcare powers of attorney and other so called “advance directives.” POAs may be LIMITED (LPOAs) OR or GENERAL (GPOAs). An LPOA may authorize the agent to perform certain specified functions, and his authority to act for the principal is limited to the matters specified in the POA. A GPOA is a broad grant of authority, and can authorize the agent to do ALMOST any act involving property that the principal could have done himself. The one big exception is that of making a will. An agent acting under a GPOA has no authority to make a will for the principal. An agent acting under a GPOA may execute a document establishing a trust on behalf of the principal, but not a will.
A DURABLE POA (DPOA) contains a clause that states that the POA remains in full force and effect even if the principal become incompetent. This is extremely important! Most POAs prepared by attorneys for their clients are DURABLE POAs. In addition, the general DPOA should contain a clause specifically authorizing the agent to make gifts on behalf of the principal. The taxing authorities may refuse to recognize gifts made with a DPOA unless such a specific clause is present. A DPOA may become effective when executed, or it may be a “SPRINGING POWER” that becomes effective upon the happening of a certain event. For example, the DPOA may contain a clause stating that the agent’s authority to act ”springs to life” when the principal’s physician states in writing that in her opinion, the principal is no longer capable of managing his affairs.
DPOAs can be extremely useful documents in many situations. Perhaps the greatest benefit of DPOA is the avoidance of conservatorship proceedings. If a person becomes unable to properly handle their affairs due to mental incapacity, physical infirmity, or advanced age, then family members may be forced to have the person declared incompetent and placed under conservatorship. This can be an expensive, time consuming and humiliating process. A properly prepared DPOA can make conservatorship proceedings unnecessary.
While DPOAs can be extremely useful, they should not be taken lightly! DPOAs are serious legal documents. If you give someone a DPOA, they can act fully in your place, and you will be responsible for the acts of the agent. Thus, DPOAs should be given only to those persons whom you completely trust. A POA may be revoked by recording a notice of revocation at the office of the county register of deeds.
Lets look at four cases that illustrate the uses and misuses of DPOAs.
Case #1. Clark has several parcels of real property for sale. Before he can sell them, his National Guard unit is called to active duty to serve in Iraq. Clark gives his brother Kelly a limited DPOA allowing him to sign the deeds and other transfer documents on Clark’s behalf.
Case #2. Mrs. Entwhistle has a large estate, and executes a DPOA naming her daughter as agent. Shortly thereafter she suffers a massive stroke which leaves her completely paralyzed and unable to speak. Using the DPOA, her daughter arranges for her mother’s care in a nursing home, sells real property, establishes a living trust to avoid probate and transfers her mother’s assets to the trust. She also uses her DPOA to make gifts to grandchildren and other family members to reduce the size of her mother’s estate. Conservatorship is avoided!
Case #3. Achmed and Miriam are naturalized U.S. citizens. They immigrated to the U.S. several years ago from a Mideastern country where they were born and married. Achmed gets into serious legal trouble in the U.S. and flees the country to avoid prosecution. Just before fleeing, he empties some of their joint U.S. bank and investment accounts, and hides the funds in a Swiss bank account. In his homeland, women are treated like property and have few rights, so Achmed easily obtains a divorce from Miriam by simply filing a form with the appropriate government office. But here is the good news! Before their troubles began, Achmed and Miriam had given each other DPOAs, and Miriam has all of the originals. Acting on her lawyer’s advice, as agent she uses Achmed’s DPOA to transfer all of their jointly owned U.S. real estate to her name alone. She also files the appropriate documents to revoke the DPOA that she had given Achmed. She simply used his DPOA to protect herself.
Case #4. Sabrina has a responsible job with a large multinational corporation. She is married to Carlo, who took early retirement due to a disability. Sabrina is offered a temporary assignment at one of her employer’s foreign subsidiaries. She will be out of the country for six months, but will receive a substantial bonus. She accepts the posting, leaving Carlo to manage the valuable rental property that she inherited from her parents. Before going, she updates her will and executes a DPOA, naming Carlo as agent. Some buddies take Carlo to Tunica for his first visit. Although he has never before gambled, he loves the atmosphere and the attention he receives from the attractive casino employees. He returns again and again. Although he won initially, soon his losses are mounting. He empties their joint savings account. When a certificate of deposit matures, he does not renew it. The rental income from Sabrina’s properties does not get deposited to her rent account. Knowing that she will be furious, Carlo gets desperate! He seeks advice from a “friend” he met at the casinos. This “friend” always brags about the betting system that he uses to “beat the house” at Tunica. Seeking to win back the money he has lost, Carlo uses the DPOAs to take out 90% mortgages on Sabrina’s rental properties. Worried to death, Carlo become distracted. In fact, he is so distracted that he forgets to pay the insurance premiums on the rental property. One of the heavily mortgaged properties burns to the ground. The stress of this mess causes Carlo to have a heart attack. Sabrina returns from overseas to find her properties mortgaged to the hilt and the money gone! She is legally obligated to pay the mortgage on the uninsured property destroyed by fire.
As we can see from the above cases, DPOAs can be a blessing if properly used and a curse if misused. That is why you should be very, very careful in your choice of agent. Circumstances change, people change, and circumstances change people. Although DPOAs may seem to be straight forward, simple documents, “don’t try this at home!” Consult an experienced estate planning attorney. You will be glad that you did.
“Whatever does not kill you makes you stronger,” observed the German philosopher, Friederich Nietzsche (1844-1900). If there is any good, anything redemptive to be found in the current financial crisis and mess, then perhaps we should begin by considering these words of wisdom.
Investment guru Warren Buffett has called America’s financial crisis “an economic Pearl Harbor.” This reminds me of the words attributed to the Japanese admiral in charge of the attack on the U.S. naval base at Pearl Harbor. When congratulated by his subordinates, Vice Admiral Nagumo is reputed to have said, “ I fear that we have awakened a sleeping giant and filled it with a terrible resolve.” That is exactly what happened.
All over our country, we are now waking up and realizing the folly of having too much house, too little savings, too much debt, too many expensive “big boy toys,” and too much stuff. Many people are resolved to change their financial lives and their relationships with money. Those who watch consumer trends believe that this may have a significant impact on consumer spending. Writing for Harvard Business Online, marketing consultant John Quelch has identified a new type of consumer that he calls “The Simplifier.” This new brand of consumer is pessimistic, cautious, and thrifty.
Simplifiers have four identifying characteristics:
First, they recognize that they have more “stuff “ than they can use or need. Our culture has accumulated so much “stuff’ that we have seen the development of a new profession, the professional organizer, to help us manage it. Baby boomers are spending weeks and months sifting through and disposing of even more possessions when their parents die or their living arrangements change. The past few months have seen a surge of books, websites, and blogs devoted to helping boomers dispose of clutter. More and more people are empting attics, basements, closets and garages, abandoning the “you-never-know-when –you-might-need –it” mindset they learned from their parents.
Second, Simplifiers want to collect experiences rather than possessions. They realize that that experiences, like education, is something that can never be taken from them. They realize that the same is certainly not true of possessions. Also, Simplifiers want to give experiences instead of goods as gifts to their children, relatives, and friends. There are few things that compare to the experience of traveling. For example, it has been twenty-three years since my wife and I visited London, but that experience is just as fresh today as it was in 1985. After the jet lag passed, we both agreed that we felt that we had returned to our real home. We felt that we were from there. For the past eight years, I have made an annual business trip to San Antonio and each time, I visit the Alamo. Every year, I stand there in awe of what took place in the crumbling walls of that old church that became a fort, knowing that larger than life men like David Crockett and Jim Bowie chose to fight and die there for freedom. I do not know of any possessions that can convey such depth of feeling as can the experience of being there.
Third, Simplifiers find that their stuff has become an embarrassment. When gas prices spiraled out of control a year or so ago, big SUVs suddenly changed from a pleasant indulgence to the signal of an irresponsible purchase of a gas guzzler. I know. I was sooooo glad to trade-in my Jeep Grand Cherokee with its big hemi for a Honda Accord!
Fourth, Simplifiers are rejecting conspicuous consumption. They reject marketers’ continual pressure to spend more money on possessions instead of education, health care, and charity. They are disgusted with retailers who try turning every holiday and remembrance day into an orgy of buying gifts, cards, flowers, and candy. They are angry with banks that seduce their children with generous offers of credit cards, and then trap them into paying obscenely high interest rates. They have no sympathy for those industries that are suddenly pleading for government bail-outs, after years of practicing poor, inefficient management. The Simplifiers are going to vote with their pocketbooks, and woe to the merchants who do not realize this. Many of them will have new signs on their doors, and those signs will read “CLOSED.”
Will you join the ranks of the Simplifiers? Will you embrace thrift and savings, reject debt and consumerism? Will you learn to shop in your own closet? Will you turn a cold and hard eye to marketing efforts? Will you stop believing the empty promises of politicians and business people who presume to know what is best for you, and instead adopt a “show me” attitude? Will you teach these things to your children? Will you teach your children that as consumers, they are targets? Will you teach your children that there is ultimately no true contentment and joy in things, but that true happiness in life comes from your relationships, experiences, and spiritual life? If you will do these things and teach them to your children, then whatever you have suffered from the present financial crisis will make you strong indeed.
Don’t let you or your loved ones end up like Bruce Friedman.
Dear readers, I know that you’ve never heard of Bruce Friedman, but I hope that you never forget him. I urge you to spend a few moments learning from the sad story of an unhappy man.
Bruce and Anne Friedman were happily married for 20 years. Anne was a school principal in New York City. While on vacation, she died suddenly of a massive heart attack. Anne had always assured Bruce that he was the beneficiary of her state teacher’s retirement fund, and as her surviving spouse, he filed a claim for the $950,000 in benefits. To Bruce’s considerable shock, his claim was denied. The state retirement fund informed Bruce that when Anne became a participant in the fund 28 years earlier, she had named her parents and her sister as her beneficiaries. As both her parents were deceased, the state awarded Anne’s entire retirement benefit to her sister. Her husband Bruce received nothing. Bruce took the matter to court, claiming that as surviving spouse, he was entitled to the retirement benefit that Anne had promised him during the years of their marriage. He lost in court. He appealed and lost. He appealed again and lost again. The New York Supreme Court decision pointed out that since Anne had never changed her original beneficiary designation, she obviously did not wish to make her husband the beneficiary of her retirement fund. We can pity poor Bruce Friedman, whose hopes for a financially comfortable retirement were shattered. Incidentally, Anne’s sister received ALL the retirement benefit, and refused to share it with Bruce.
Dear readers, it’s easy to see what caused this financial catastrophe for Bruce. Apparently, Anne simply never got around to changing her beneficiary designation form when she and Bruce married. And apparently she assumed that she had made the change, but she had not! The results were surely not what she had intended, and her husband Bruce was the big time loser.
Basically, in Tennessee there are three ways that property ways by which property passes at death: (1.) by wills and trust agreements; (2). by joint ownership (real estate, bank accounts, brokerage accounts, etc.); and (3.) by beneficiary designations (life insurance contracts, annuity contracts, payable on death accounts, pension and profit sharing plans, Individual Retirement Accounts (IRAs), Keogh plans, 401(k) and 403(b) plans, and other types of retirement accounts).
As a financial advisor, I routinely see new clients whose beneficiary designations name a former spouse, a deceased relative, etc. They simply forgot to change those important documents when their circumstances changed. While people may change their wills, they often forget that a significant part of their assets passes to their heirs by beneficiary designations rather than by will.
What should you do to avoid a tragic situation like Bruce suffered? Promptly review ALL financial documents that have beneficiary designations. Typically this will include life insurance, annuities, retirement accounts, etc. Your CPA, attorney or financial advisor can assist you. Be sure that you retain copies or duplicate originals of all beneficiary designations. Your or your loved one’s financial future may depend on an up-to-date and correct beneficiary designation form. Remember poor Bruce Friedman!
“…’You shall love your neighbor as yourself.’ There is no other commandment greater than these.” ~Mark 12:31, NKJV.
We are all familiar with these words that appear many times in the Old and New Testament and also in essence in the teachings of other faiths. What do these words really mean to us? Do they make us uncomfortable or even frighten us? Sometimes I think that they do.
We are living in frightening times. Uppermost on everyone’s mind is of course the economy and how it will affect us. As a financial counselor and CPA, I see this daily in the faces of those who sit with me in my conference room. As I read the newspaper, and see notices of job lay-offs, business closing, salary and benefit cuts, etc., I think: “How will these things affect my relatives, clients, and friends? These people are my neighbors!”
Dear readers, all around us, our neighbors are hurting. They are afraid. They are filled with anxiety, uncertainty, and dread. Our neighbors are worried about losing their jobs, their homes, and the comfortable retirement they have planned. They fear becoming sick or injured, knowing that out-of-control healthcare costs may very well ruin them financially. Many of our neighbors are financially supporting not only themselves, but children, grandchildren, and elderly relatives as well. They wonder how they can possibly continue to do this. Many are afraid of an explosion in crime that often accompanies hard times. Many of our neighbors are worried about how financial pressures will affect their families. Will already stressed marriages survive? Will maturing children be able to find jobs and become self-sufficient? Will increased stress cause loved ones to turn to substance abuse in a desperate attempt to cope? What does the future hold?
The above are not happy thoughts, but I assure you that your neighbors are thinking them. Psychotherapists tell me that their appointment books are full. Divorce and bankruptcy lawyers tell me that their business is booming. The neighbors that I am writing about may be you. Let’s look at some ways that we can help our neighbors in these difficult times.
First of all, get to know your neighbors. Several weeks ago, our neighborhood organized a crime awareness meeting. Officers of the Jackson Police Department spoke to us about what we could do to prevent crime in our neighborhood. Those fine officers told us that one of the main reason there are so many residential break-ins and home invasions is that people no longer know their neighbors. We all lead such busy, compartmentalized lives that we don’t take time to really get to know our neighbors. We are not involved in their lives. We no longer take the time to visit on front porches or across backyard fences. We don’t talk with them to shares our troubles and triumphs. Since we no longer really know our neighbors and they don’t know us, we don’t watch out for one another. We don’t keep an eye on their homes and cars. We tend to mind our own business so much that we don’t notice when things are not going well. In reality, some of the finest and most interesting people that you will ever meet live down the street or around the corner. The problem is that once we get to really know our neighbors, we will start caring about them and they will start caring about us. Sadly, this bumps some of us out of our comfort zones.
Secondly, listen to your neighbors. Talking is important, but listening is so much more important. We all know how to talk, but listening is a skill that must be acquired. Loving your neighbor is not about giving advice, solving problems, or taking on their burdens; it is about listening and caring. We have a tendency to avoid people with troubles. Anyone who has suffered a serious illness, a death in the family, job loss, bankruptcy, divorce and other marital problems, etc. will tell you that some of their friends disappeared from the scene. Unconsciously, we fear that their misfortune is contagious and will contaminate us. The conscious reason however, is that we feel awkward. Remember those awful junior high school dances? The boys were on one side of the gym and the girls on the other. Each side stared at the other side, giggling nervously, not knowing how to cross the wide distance and ask for a dance. We simply don’t know what to do or what to say! We know that our neighbor has lost his job, and we are so sorry for him and his family. However, we are afraid to ask “How are you doing?” because we are afraid of the answer. We don’t know what to do with the answer, for in our culture, we expect a clear solution to every problem. If we ask the question, “ How are you making it?”, we feel responsible for the answer and solution as well. If our friend answers, “I am scared,” we feel that we must have a solution to offer. Now that scares us, the listeners! We feel that we must do something! In reality, our hurting neighbors don’t expect us to have the solution at hand. All they want us to do is to listen and to care.
Third, seek out your neighbors. People that are having financial difficulties are ashamed. They are embarrassed. They think that others will think less of them. This is especially true with men, for in our culture, a man so often feels that the measure of his worth is determined by his financial success or the lack of it. A man bears a terrible weight if he feels that he cannot adequately provide for his family. If you sense, if you feel, if you hear that your neighbors are having financial hardship, don’t wait. Go to them now in friendship, and offer them fellowship. You don’t have to take solutions, but it would be nice to take a meal, take them out to dinner, or invite them to dine in your home. Perhaps you can do something anonymously. A gift certificate for a ham will help feed a family for a week or more. When people in distress know that they are surrounded by people who genuinely care, their burden becomes lighter because it is shared. The time has come in America when we must become serious about sharing each other’s burdens.
Fourth, do business with your neighbor. Shop in local stores. Dine in local, family owned restaurants. To the extent possible, buy goods and services locally. Do what you can to support our local economy. Keep your eyes and ears open. Your neighbor may have lost his job, but might have skills that you can use. Perhaps you can hire him to help paint your house or build a deck. Perhaps you can hire his son to mow your yard. If we begin to seriously think of the welfare of our neighbors that surround us, we will ALL benefit.
Fifth, share with your neighbor. To a greater or lesser degree, we all are feeling the pinch of hard economic times. Some are genuinely suffering, while other are only inconvenienced. We can share with our neighbors by giving to them directly, by giving to our churches and synagogues, and by supporting local charitable organizations. The West Tennessee Healthcare Foundation, RIFA, the Salvation Army, and other fine charitable organizations are most worthy of our financial support.
Look around you. If we love our neighbors as ourselves, we will see their sufferings as our own. It is time for Americans to break out of the isolated, comfortable shells we have occupied for so long. The economics of our world has changed. Leadership expert John Maxwell is fond of saying; “Change is inevitable; growth is optional.” If we will consciously seek to grow in concern for and love of our neighbors, we will all benefit, and become better people in the process.
