Stone Law Offices, Ltd.

The Second Most Powerful Estate Planning Document: Power of Attorney

“A power of attorney, similar to a last will and testament, is a powerful document that must be created before it becomes necessary.”

All too often, people wait until it’s too late to execute a power of attorney. It’s uncomfortable to think about giving someone full access to our finances, while we are still competent. However, a power of attorney can be created that is fully exercisable only when needed, according to a useful article “Power of attorney can be tailored to circumstances” from The News-Enterprise. Some estate planning attorneys believe that the power of attorney, or POA, is actually the second most important estate planning document after a will. Here’s what a POA can do for you.

The term POA is a reference to the document, but it also is used to refer to the person named as the agent in the document.

Generally speaking, any POA creates a fiduciary relationship, for either legal or financial purposes. A Medical or Healthcare POA creates a relationship for healthcare decisions. Sometimes these are for a specific purpose or for a specific period of time. However, a Durable POA is created to last until death or until it is revoked. It can be created to cover a wide array of needs.

Here’s the critical fact: a POA of any kind needs to be executed, that is, agreed to and signed by a person who is competent to make legal decisions. The problem occurs when family members or spouse do not realize they need a POA, until their loved one is not legally competent and does not understand what they are signing.

Incompetent or incapacitated individuals may not sign legal documents. Further, the law protects people from improperly signing, by requiring two witnesses to observe the individual signing.

The law does allow those with limited competency to sign estate planning documents, so long as they are in a moment of lucidity at the time of the signing. However, this is tricky and can be dangerous, as legal issues may be raised for all involved, if capacity is challenged later on.

If someone has become incompetent and has not executed a valid power of attorney, a loved one will need to apply for guardianship. This is a court process that is expensive, takes several months and leads to the court being involved in many aspects of the person’s life. The basics of this process: three professionals are needed to personally assess the “respondent,” the person who is said to be incompetent. The respondent loses all rights to make decisions of any kind for themselves. They also lose the right to vote.

A power of attorney can be executed quickly and does not require the person to lose any rights.

The biggest concern to executing a power of attorney, is that the person is giving an agent the control of their money and property. This is true, but the POA can be created so that it does not hand over this control immediately.

This is where the “springing” power of attorney comes in. Springing POA means that the document, while executed immediately, does not become effective for use by the agent, until a certain condition is met. The document can be written that the POA becomes in effect, if the person is deemed mentally incompetent by a doctor. The springing clause gives the agent the power to act if and when it is necessary for someone else to take over the individual’s affairs.

Having an estate planning attorney create the power of attorney that is best suited for each individual’s situation is the most sensible way to provide the protection of a POA, without worrying about giving up control while one is competent.

COVID-19 Estate Planning Action List

Over the next several weeks, we will be sending out additional resources and updates on the impact of COVID-19 on your personal and business plans.  As such, be sure to watch for our newsletters, blogs, emails, webinars, and posts to our website (www.nvestateplan.com).  In the interim, following is a checklist of short-term actions you can take to assure your estate planning remains a success:

• Conduct a “fire drill” of your estate planning documents, if not done within the last 3 years, i.e., do you have a complete, comprehensive, and current estate plan.

• Confirm all of your assets are in alignment with your estate plan, i.e., are your assets titled in the name of your Living Trust, and beneficiary designations updated.

• Clarify the location of your important papers (Will, Trust, Powers of Attorney, Insurance Policies, Bank Statements, etc.) and communicate the location to your named successor trustee(s) and key family members.

• Communicate with your family members regarding your wishes and expectations about your estate plan.

• Complete the personal stuff, i.e., complete your Personal Property Memorandum and Memorial Instructions in your estate planning binder.

• Connect (safely) with your friends, family, and others; don’t allow “social distancing” to become “social isolation.”

• Contact us if you have any questions or concerns about your estate planning or if there is any need to update the same.

All of us at Stone Law Offices are here to assist and support you as we all work through this challenging period together.  If you have any questions, or if you need assistance with the review or update of estate planning, probate, trust administration, asset protection, and business planning legal needs, please do not hesitate to contact us at 702-998-0444, or schedule a complimentary consultation. 

We look forward to the future time when we sit together in a COVID-19 free world.  In the meantime, stay safe and stay healthy!!!

Stone Law Offices’ COVID-19 Response – We are open and here to help!!!

As many of you are aware, Nevada Governor Sisolak has implemented his “Stay Home for Nevada” initiative, which includes the closing of all “non-essential” businesses for the next 30 days in order to slow the spread of the COVID-19 virus.  During this period, Stone Law Offices will remain open as an “essential service” business to assure that our clients’ and the community’s legal needs continue to be met.

In keeping with CDC guidelines and other medically advised social-distancing guidance to minimize the community spread of COVID-19, we have implemented the following “best practices” protocols for the health and safety of both you and our staff, including but not limited to the following:

• Except for signing mission critical legal documents or when otherwise absolutely necessary, we are minimizing in-person meetings in our office and are utilizing virtual client meetings and prospective client consultations via telephone and video conference, and email.
• Hand sanitizer and disinfectant wipes are available in our lobby, every conference room, and the common areas, and additional high-touch cleaning and disinfecting is being done multiple times throughout the day.
• Hand-washing is mandated by all staff members before and after each in-person client meeting, and all staff have been instructed to stay home if they are feeling ill or suspect that they have come in contact with the virus.
• On your part, if you are experiencing any flu-like symptoms (fever, cough, shortness of breath, etc.), we ask that you stay at home and contact us for how best to address your legal needs.
• We are leveraging our technology for the receipt and delivery of your documents via our secure cloud service, and utilizing e-signature and e-notary services for remote signing. In addition, our technology allows each of our attorneys and staff to work remotely from home.     

If you have any questions, or if you need assistance with the review or update of estate planning, probate, trust administration, asset protection, and business planning legal needs, please do not hesitate to contact us at 702-998-0444, or schedule a complimentary consultation. 

Can You Apply for a Mortgage at an Advanced Age?

“Federal law, under the Equal Credit Opportunity Act, forbids discrimination in the mortgage market on the basis of age. Nonetheless, loan officers say older borrowers often don’t realize they can get loans with terms that will expire on their 110th, 120th or nearly 130th birthdays.”

A senior loan officer with a mortgage company in Florida recently wrote a 30-year loan for a retiree who was purchasing a home in New Port Rickey. He didn’t expect to have trouble qualifying for the loan, but he was surprised that he did.

That’s because he was 97 years old.

Under the Equal Credit Opportunity Act, federal law forbids discrimination in the mortgage market on the basis of age, reports The Wall Street Journal in a recent article “You’re Never Too Old to Apply for a Mortgage.” However, most seniors don’t know that they can get loans that will expire on their 110^th, 120^th and even later birthdays. In fact, the Federal Housing Finance Agency says that borrowers over age 65 make up ten percent of all mortgages originated annually.

Some lenders are working harder to find ways to qualify retirees, including rolling out lending programs that allow borrowers to use their investment portfolios to qualify without taking monthly distributions. Loan officers, especially in areas with large numbers of retirees, have become skilled at adding up income streams, helping borrowers establish new ones and willingly guiding them through the process.

The simplest way is for a retiree to add up their monthly fixed income from all sources, which are then treated like a salary by the lenders. If those numbers are not high enough, the next step is to create an ongoing distribution from a retirement account, like an IRA or 401(k). For one mortgage lender, a retired borrower needs to show $8,000 of monthly income for a 30-year home purchase loan. The borrower set up a distribution for that amount from an IRA worth $500,000, and had her financial advisor draft a letter to the lending company about the new income stream. This made her qualified for the loan, even though at that rate, her entire IRA would be drained in five or six years. Fannie Mae rules only require that distributions are guaranteed to continue for three years.

If the property produces income, those funds can be counted towards the qualifying amount. However, the underlying value of the property, even if it is owned outright or if there is a lot of equity in the home, is not considered by the lender. Property tax and homeowner’s insurance are measured as debt in the debt-to-income equation.

If qualifying is still a problem, lenders are increasingly willing to include stocks, bonds, and mutual funds. This is very different than creating a distribution steam that counts as income. The borrower is not required to take a monthly amount from their portfolio. The lender uses a formula called “asset depreciation” or “asset annuitization or depletion” to impute a monthly distribution from the investment portfolio.

Some jumbo lenders who cater to high net worth individuals have more liberal asset depreciation programs. In New York, an 83-year-old retired co-op owner received a $1 million, 10-year, interest only adjustable rate mortgage for a re-finance at a highly competitive rate through a bank’s program similar to an asset depreciation plan. With the deposit of a few hundred thousand dollars into the bank, the owner qualified based on a portfolio of stocks and bonds valued at $1.6 million.

Speak with your estate planning lawyer before making this kind of large financial decision, since it may have a significant impact on your overall estate plan.

Should Retirees Buy Vacation Homes?

“While many retirees have considered purchasing a vacation home to escape cold winters, to rent out for income, or simply have a gathering place for far-flung family members, there are a number of financial matters to consider that could make ownership onerous.”

It sounds like a great idea. After all, it’s an investment in real estate and it could be passed along to the next generation. It might be a rental property, too, generating income when the owners aren’t able to enjoy it. However, there are some things to be careful of, warns Barron’s in the article “What Retirees Should Know Before Buying a Vacation Home.”

Taxes, maintenance, insurance and possibly the cost of hiring a rental-management company are just a few things to consider. Above all, don’t think of it as an investment This is because with real estate, there are no guarantees. For one thing, it’s not liquid. You can’t count on selling it for a good price, when you need some ready cash.

The first and most important question: can you afford it? Retirees are usually living on a fixed income. The cost of a vacation home can be loaded with surprises, just like any other property. If there’s enough of a nest egg to live on and there won’t ever be a need to sell fast, then it may be a good move.

If there’s enough money to purchase the home, then investing in someone to manage the property is a good idea. Empty homes are targets for thieves, and if there’s a maintenance issue, an uninhabited home is vulnerable to damages.

Where taxes are concerned, the sale of a second home does not give the seller the same capital gains tax exemption as the sale of a primary residence. That exemption is only available for people who have lived in the home as a primary residence for at least two of the previous five years. The exemption is up to $500,000 for married couples.

There is one way around it, if it makes sense for owners. Let’s say that they plan on downsizing from their primary residence. They sell it and use the tax exemption. They then move to the vacation home, for at least two years, using that as their primary residence. At that point, they can sell the home that has now become a primary residence, enjoy the generous tax exemption and then move to a new primary residence.

As a rental property, owners are permitted to rent for up to 14 days without owing any taxes on the rental income. After the 14-day period, taxes must be paid, but some of the rental expenses are tax deductible.

If the intent is to keep the house for as long as the owners are living, it becomes part of the estate and must be included in an estate plan. Leaving it to the next generation may be feasible, if all of the children want to keep the house and can afford its upkeep. Have the conversation with the children first. Giving the house to children can be accomplished by putting it into a limited liability corporation with an operating agreement that defines it. Each child will have a stake in the entity that owns the home, rather than the house itself.

Talk with your estate planning lawyer about how the purchase and inheritance of a vacation home may impact your overall estate plan before making a purchase.

Unintended Kiddie Tax Change Fixed in the SECURE Act

“The kiddie tax was created long ago to prevent wealthy parents from cutting their taxes by transferring a large amount of investments to their dependent children, who would be taxed at a lower rate.”

Families were hurt by a change in the kiddie tax that took effect after 2017, but they’ll be able to undo the damage from 2018 and 2019 now that a fix has become law. The SECURE Act contains a provision that fixed this unintended change, as reported in the San Francisco Chronicle’s recent article, “Congress reversed kiddie-tax change that accidentally hurt some families.”

The kiddie tax was created many years ago to prevent wealthy families from transferring large amounts of investments to dependent children, who would then be taxed at a much lower rate than their parents. It taxed a child’s unearned income above a certain amount at the parent’s rate, instead of at the lower child’s rate. Unearned income includes investments, Social Security benefits, pensions, annuities, taxable scholarships and fellowships. Earned income, which is money earned from working, is always taxed at the lower rate.

The Tax Cuts and Jobs Act of 2017 changed the kiddie tax in a way that had severe consequences for military families receiving survivor benefits. Instead of taxing unearned income above a certain level—$2,100 in 2018 and $2,200 in 2019—at the parent’s tax rate, it taxed it at the federal rate for trusts and estates starting in 2018.

Hitting military families with a 37% tax rate that starts at $12,750 in taxable income is unthinkable, but that’s what happened. Low and middle-income families whose dependent children were receiving unearned income, including retirement benefits received by dependent children of service members who died on active duty and scholarships used for expenses other than tuition and books, were effectively penalized by the change.

Under pressure from groups representing military families and scholarship providers, Congress finally added a measure repealing the kiddie tax change to the SECURE Act, which seemed as if it was going to be passed quickly in May. The bill was stalled until it was attached to the appropriations bill and was not passed until December 20, 2019.

There is a specific provision in the bill: “Tax Relief for Certain Children” that completely reverses the change starting in 2020. It also says that subject to the Treasury Department issuing guidance, taxpayers may be able to apply the repeal to their 2018 and 2019 tax years, or both.

The IRS has not yet issued guidance, but the expectation is that amended returns will be required, if a taxpayer elects to use the parents’ tax rate for that year.

Some parents whose children have investment income may be better off using the estate-tax rate for the two years that it is in place. In 2019, those trust brackets may actually allow more capital gains and dividends be taxed at the 0% and 15% rates than by using the parents’ rates.

What Should I Keep in Mind, When I Remarry?

“When you remarry, you're not only combining residences with your new spouse, you're also merging your finances. If you have children, it may involve some financial-related stress. For instance, you might need to factor in child support payments or consider whether your new marriage will impact your children's inheritance.”

Before you remarry, discuss any past financial issues with your fiancé, and plan for success, by considering some important ideas.

U.S. News & World Report’s recent article, “6 Financial Considerations for Remarriage,” lists six financial considerations and crucial steps to take before you remarry:

1. Revise Your Budget. Whether this is your first, second, or third marriage, couples need to create a budget for daily spending, monthly expenses and big-ticket purchases. You should also talk about your household expenses and costs related to children from a prior marriage. If you have to pay alimony, let your new spouse know. It’s also a good time to talk about credit card debt, past investments you've made and retirement accounts. You may want to draft a prenuptial agreement.
2. Inform your Fiancé of Any Financial Obligations, Including Child Support. Before getting married, review the laws to see how child support may be impacted by marriage to a new person. While it's unlikely that you would lose your child support if you remarry, the family court may reduce the amount. If a person paying the child support is remarrying, they should talk to their partner prior to the marriage to make certain they understand the amount of the payments.
3. Check Insurance and Benefits. A frequent mistake when remarrying, is not updating the beneficiaries of life insurance policies. You also may have to look at other updates to your coverage, like who will be on your health plan, and you may need to modify your homeowner’s insurance with a spouse and children in residence. Understand that if you get government benefits, like Medicaid or Social Security, you could forfeit your Medicaid eligibility when you remarry if your spouse's income is too high to be eligible. You might also discover that your Social Security benefits from an ex-spouse will stop, after you remarry.

A second marriage may also increase a parent's income for federal financial aid purposes for college. If a parent is the custodial parent for the FAFSA (Free Application for Federal Student Aid), their income now may include their new spouse's income. It is important to discuss saving for college and tuition costs, as well as if either partner has children from a prior marriage, whether each spouse will save money for tuition costs.

5. Estate Planning Is Critical. Check your estate planning before remarrying. That includes a will, medical powers of attorney, do not resuscitate orders, durable powers of attorney, designations of guardianship or consent to adoption and various trusts, including trusts for special needs children. If you have children from a prior relationship, hire a qualified estate planning attorney.
6. Create an Inheritance Plan. If you have children from a prior relationship, you need to put the right estate planning documents in place to protect them from being disinherited. In some states, a last will and testament may be enough, but in others it may make sense to also have a revocable living trust.

The biggest mistake that couples commit when entering their second marriage, is thinking that their own children will inherit any of their estate, if they die first. Perhaps the adult children will inherit some of the estate, but you should speak to an estate attorney to create a customized strategic plan. In many instances, the living spouse will change the plan and leave everything to their children and nothing to yours.

Why is Ashton Kutcher So Stingy with his Kids’ Inheritance?

“In a recent episode of the Dax Shepard podcast "Armchair Expert," Kutcher said he wasn't creating trust funds for his two children with his wife, Mila Kunis.”

Ashton Kutcher said, "My kids are living a really privileged life, and they don't even know it.”

The actor has an estimated net worth of $200 million.

Business Insider’s recent article, “Ashton Kutcher says he's not setting up a trust fund for his kids, and his parenting approach echoes what billionaires like Warren Buffett and Bill Gates have said,” reports that Kutcher's parenting approach is similar to other well-known wealthy individuals. Elton John, Sting and Simon Cowell have all revealed they don't plan to leave their children a lot of money. Instead, they plan to emphasize educating them on the value of hard work.

Likewise, many billionaires aren't leaving their children much money. For example, Bill Gates has announced that he would leave $10 million to each of his three children. That’s just a fraction of his $108 billion net worth.

In a 2013 Reddit "Ask Me Anything" forum, Gates said: "I definitely think leaving kids massive amounts of money is not a favor to them. Warren Buffett was part of an article in Fortune talking about this in 1986 before I met him, and it made me think about it and decide he was right."

Mr. Buffett said he has pledged 100% of his estimated $87.3 billion fortune to various charities. Instead of giving each of his three children millions or billions, he’s promised to give about $2.1 billion of Berkshire Hathaway stock to each of his children's charities.

Buffett's decision might arise from his views on dynastic wealth, or the pattern of families passing money down from one generation to the next. Buffet has been vocal about his efforts to decrease the vast wealth sitting in the hands of a few influential people.

"Dynastic wealth, the enemy of a meritocracy, is on the rise," Buffett said in 2007. "Equality of opportunity has been on the decline."

Older generations might consider restricting their children's access to family wealth because of highly visible heirs and so-called trust-fund babies, who show off their wealth on social media. Parents may want to include provisions to ensure that any trust can be modified in the future.

Why is the Cars’ Ric Ocasek’s Wife Contesting His Will?

“Late Cars’ singer Ric Ocasek cut his estranged, supermodel wife out of his will, claiming that she ‘abandoned’ him, the now-public document reveals.”

“I have made no provision for my wife Paulina Porizkova (‘Paulina’), as we are in the process of divorcing,” the late Cars’ singer Ric Ocasek wrote in his will.

Wealth Advisor’s recent article, “Cars singer Ric Ocasek cuts supermodel wife Paulina Porizkova out of will,” reports that the will went on to state: “Even if I should die before our divorce is final … Paulina is not entitled to any elective share … because she has abandoned me.”

Porizkova was the one who discovered her estranged husband’s body in September, as she brought him a cup of coffee. Ocasek was recovering in his New York City townhouse from a recent surgery.

The couple had two sons together but ended their marriage in May 2018, after 28 years of marriage. They first met while filming the music video for the Cars’ song “Drive” in 1984.

Porizkova said that Ocasek’s death was “untimely and unexpected.”

“I found him still asleep when bringing him his Sunday morning coffee,” she wrote in a statement published to Instagram following Ocasek’s death.

“I touched his cheek to rouse him. It was then I realized that during the night he had peacefully passed on.”

Reports say that Ocasek’s will lists his assets to include $5 million in “copyrights,” but only $100,000 in “tangible personal property” and $15,000 in cash.

The document doesn’t detail what constitutes the “copyrights” assets. Even though $5.115 million may appear low for a rock-legend like the Cars’ Ocasek, he likely had money stashed away in trusts. One reason why people use trusts, is to protect their privacy.

Ocasek’s will looks to have excluded two of his six sons, but not the children he had with Porizkova. Perhaps these two sons may have been compensated through other financial means.

The document indicates that Ocasek signed the will on August 28, just a month before his death. The 75-year-old died of heart disease on September 15.

Pulmonary emphysema, a type of lung disease, had also contributed to his death, the medical examiner said.

How Can I Upgrade My Estate Plan?

“Everyone’s heard the stories of celebrities who died without a proper estate plan in place. It’s been a hot topic in the last few years with Prince and Aretha Franklin serving as unfortunate faces of the phenomenon. However, it’s not just freewheeling entertainers.”

Forbes’ recent article, “4 Ways To Improve Your Estate Plan,” suggests that since most people want to plan for a good life and a good retirement, why not plan for a good end of life, too? Here are four ways you can refine your estate plan, protect your assets and create a degree of control and certainty for your family.

1. Beneficiary Designations. Many types of accounts go directly to heirs, without going through the probate process. This includes life insurance contracts, 401(k)s and IRAs. These accounts can be transferred through beneficiary designations. You should update and review these forms and designations every few years, especially after major life events like divorce, marriage or the birth or adoption of children or grandchildren.
2. Life Insurance. A main objective of life insurance is to protect against the loss of income, in the event of an individual’s untimely death. The most important time to have life insurance is while you’re working and supporting a family with your income. Life insurance can provide much needed cash flow and liquidity for estates that might be subject to estate taxes or that have lots of liquid assets, like family businesses, farms, artwork or collectibles.
3. Consider a Trust. In some situations, creating a trust to shelter or control assets is a good idea. There are two main types of trusts: revocable and irrevocable. You can fund revocable trusts with assets and still use the assets now, without changing their income tax nature. This can be an effective way to pass on assets outside of probate and allow a trustee to manage assets for their beneficiaries. An irrevocable trust can be a way to provide protection from creditors, separate assets from the annual tax liability of the original owner and even help reduce estate taxes in some situations.
4. Charitable Giving. With charitable giving as part of an estate plan, you can make outright gifts to charities or set up a charitable remainder annuity trust (CRAT) to provide income to a surviving spouse, with the remainder going to the charity.

Your attorney will tell you that your estate plan is unique to your situation. A big part of an estate plan is about protecting your family, making sure assets pass smoothly to your designated heirs and eliminating stress for your loved ones.