On October 1, 2011 a new Durable Power of Attorney law took effect. Most people have Durable Power of Attorney documents as a part of their estate plan – so today I thought I would review some of the highlights of the new law.

Most of us know what a Durable Power of Attorney is, although some may be confused when it is used and when one becomes invalid. A Durable Power of Attorney document allows you to name someone to effectively and legally sign for you for a variety of commercial and legal transactions. You can grant someone the power to buy, sell and transfer stocks, bonds, money, real estate and almost anything else you can think of. A Durable Power of Attorney can be used to grant someone else the authority to make gifts on your behalf, or even establish and fund trusts – including estate planning and/or Medicaid trusts.

On your death, however, the Durable Power of Attorney document ceases. Then your will takes over. The “durable” in Durable Power of Attorney means that the powers you grant someone survive your incapacity. But the powers are not applicable after your death.

In years past, the law allowed you to create a “springing” Durable Power of Attorney meaning that it could be drafted to only take effect upon your incapacity. The new law does not allow “springing” Durable Powers of Attorney, meaning that when you sign the document it becomes immediately effective. Practically speaking, “springing” Durable Powers of Attorney weren’t very useful, since the banks and financial firms that would have had to rely on them are wary of “springing” powers because the banks and financial firms don’t want to be liable if the contingency that creates the power hasn’t occurred yet.

One of the more notable changes to the law includes the fact that a general grant of authority, such as “I grant ‘Joe’ the power to do anything that I could do” is now insufficient for most actions. In other words, if you want Joe to be able to write checks from your bank accounts, he needs specific banking powers. If you want Joe to have the ability to sign a deed conveying real estate, then the document specifically needs to grant him that power.

In fact, the law states that the authority to grant certain gifting or estate planning powers not only need to be included in the document, but each specific power needs to be initialed by the principal (you). This requirement applies to certain matters involving trusts, gifts, rights of survivorship, designation of beneficiaries, beneficial interests under annuities, disclaimers and powers of appointment. So if you want to give someone the power to change the beneficiary of your IRA, for example, not only must that actual authority be designated in the Durable Power of Attorney, but you need to initial right next to that specific power for it to be valid.

Failure to have such specific powers inside of the document may render the document useless. Documents that were signed before October 1, 2011 are referred to in the statute as “legacy” documents and are supposed to remain valid even if they don’t necessarily comply with the new law, however for all practical purposes they will be more difficult to use since the banks and brokerage houses, among others, are going to require a document that complies with the new law for the bank or brokerage house to honor it.

The new law contains provisions that require banks and financial institutions to accept or reject a presented power of attorney within a certain amount of time. The new law also provides third parties who are relying on the validity of the power of attorney to be protected if it later turns out that the power of attorney was not valid for one reason or another but the third party had every reason to believe that the power was valid.

What this new law is going to do is increase the complexity and length of Durable Powers of Attorney. The specificity required to act – coupled with the fact that no one knows what specific actions may be required of your power holder in the future – requires lawyers to draft powers of attorney to contain almost anything imaginable.

The bottom line is that you’ll want to contact your estate planning attorney in the near future to update your Durable Power of Attorney to comply with the new law.

©2011 Craig R. Hersch

A few months after the death of her mother, “Janice” continued to manage her mother’s trust as if she were still alive. “Mom used to give each of my kids $13,000 a year – which is tax free – so I thought I would continue that.”

The problem is that once someone dies, the provisions that say who is to get what from the trust following the grantor’s death is what should take place. Any gifts that the grantor used to make during her lifetime should no longer continue. To do otherwise invites a challenge by the rightful beneficiaries – and likely personal liability on the part of the person who is making the improper gifts.

Let’s say, for example, that Mom’s trust in this case is supposed to be divided equally between Janice and her sister Karen. But Janice continues to make the $13,000 gifts to her children that her mother would have made at Christmas. Since Janice is acting as the trustee, she could choose to treat those as gifts from herself to her children and charge them against her share alone. She certainly shouldn’t reduce Karen’s share by those gifts.

The same holds true when paying for travel expenses related to the last illness or funeral. If Janice pays money out of her mother’s trust for her children to fly down to visit with their grandmother before her passing, or to later attend her funeral, these are not valid expenses of the administration. The only person whose travel expenses should rightfully be paid by the trust is any named trustee (Janice) or personal representative (executor) for the estate.

Another mistake that people commonly make after the grantor’s death is when they continue to use the durable power of attorney. The word “durable” in the description of the power of attorney simply means that the power of attorney survives the grantor’s incapacity. No durable power of attorney survives the grantor. When the grantor dies so does her durable power of attorney. So if expenses need to be paid or if checks need to be written then those monies should be paid by the estate or trust by the personal representative and/or the trustee – not by the holder of the durable power of attorney.

When the estate doesn’t have a whole lot of money and it is questionable whether the assets will even cover all of the deceased’s bills and expenses, it is very important that the personal representative follow proper protocol before making any payments – or the personal representative might find themselves personally liable for improper payments.

I can explain this best by example. Suppose that Dad dies with $10,000 of credit card debt, $17,000 of medical expenses, a mortgage in the amount of $120,000 and assets other than the home the total value of which is $50,000? Which bills, if any, should the personal representative pay?

That’s actually a trickier question that you might imagine. Florida law provides that all known and reasonably ascertainable creditors should receive a notice of creditors during the estate administration. Assuming that they all properly file a claim against the estate, if the estate assets are insufficient to pay all of the claims, then Florida law prioritizes the claims as to which should be paid before others.

Secured claims, like the mortgage against the home, usually can’t be discharged in an estate proceeding while credit card debt may be. It all depends upon how the law prioritizes the claims. Moreover, other fees and expenses, such as those associated with probating the estate usually have first priority. The reason for this is that estates with more creditors than assets would not be able to get representation if the legal fees and costs didn’t have priority.

If the personal representative ignores the process and the legal priority, then she is likely to be personally liable for improper payments and may have to reimburse the estate from her own funds.

So if you are managing someone’s financial affairs during their lifetime or thereafter – it is always important to consult your estate attorney before making gifts or paying expenses. If you inadvertently make payments or transfers other than what the law allows, you could find yourself having to reimburse the estate from your own funds.

©2011 Craig R. Hersch

Anyone who has ever sat on a board of directors for a church, synagogue or charity is familiar with the phrase – “too many chiefs and not enough Indians”.  Most who are sought out for board posts are community leaders – they are asked to sit on the board because they are successful at running things. They are often called “centers of influence”. But when you get all of these “chiefs” on a charity board – you typically also have a lot of people who are used to directing, but don’t particularly like taking direction.

So there are a lot of good ideas floating around the room – but nothing ever seems to get done. To implement them requires those who are predisposed to “follow-through” and actually do the work. The chiefs, in other words, need Indians. This problem is exacerbated when the chiefs disagree over which idea might be the best avenue for progress. All of the chiefs are used to being right and having their best ideas implemented. It frustrates them when another chief professes to have a better idea.

The “too many chiefs and not enough Indians” analogy extends to your estate planning documents. Some parents, in an effort to treat all of their children equally, decide to name all of them together as successor trustee, personal representative and power of attorney. This may mean that there are two, three or even four children named to make decisions for Mom, Dad – or both – if the parents should encounter a disability and can’t serve for themselves.

They may have named all of their children because they didn’t want to upset any one of them. But what Mom and Dad don’t realize is that naming someone to serve in a fiduciary role for them isn’t so much an honor as it is a big responsibility. It’s a job. And the job’s a hard one at that. Bills need to be paid, investments need to be followed, life-care decisions need to be addressed, and budgets need to be reviewed. And in most cases, the children lead busy lives of their own.

Moreover, most adult children don’t live near their parents. They have had little or no interaction with their parents’ advisors. They may not know where the bank and investment accounts are held, or how much Mom and Dad need on a monthly basis to live.

Imagine a scenario where Dad – the patriarch of the family – has run his finances competently for years. Suddenly he suffers a heart attack or stroke that renders him incapable of interacting with his accountants, financial advisors and attorneys. In his legal documents he has named all three of his children to succeed him in making these decisions. The three adult children couldn’t be any more different in their outlooks on everything from politics to money to life.

We now have the classic case of all chiefs and no Indians. Not only that, but there’s likely a lot of baggage that’s being dragged into the decision making process. A time of emotional distress may aggravate old grudges and tensions. And now the adult children – because they are all named to act – must somehow come together and agree what courses of action are in the best interests of their parents. If this doesn’t sound like a recipe for disaster – I don’t know what is.

So what’s a parent to do when deciding who to name as a successor trustee, personal representative, power of attorney or health care surrogate? My suggestion is to divide the duties up into different categories. The successor trustee, personal representative and power of attorney post are all mostly financial in nature. Here you probably want to name the child who is most likely to make wise financial decisions. The health surrogate on the other hand, might name the child who is most likely to act as the parent would act in a given situation.

Unless it’s absolutely necessary – or unless the children themselves request it – I would not suggest naming two or more children concurrently in the same post. Name one chief. You can give that chief the power to name a co-chief with him by including such a power in the document itself. But let him or her make that decision. It’s also a good idea to name a successor to the chief you name – in case he or she is unable or unwilling to act.

It also might be a good idea to communicate your intentions, rather than letting the kids find out after the fact. This obviously can be considered on a case-by-case basis given the personalities involved, but it’s been my experience that the more up-front you are, the less back-end problems you’ll encounter. You just might even hear something or other that you haven’t considered before once these matters are addressed with all concerned.

Just remember that when you’re talking about planning your affairs – YOU are the chief – and have the right to make the decisions you feel are in your best interests.

©2011 Craig R. Hersch

My great grandmother, who I was very close with growing up (I called her my “Bubby”) used to have this old cookbook. Worn from years of use, its tattered pages held the recipes that made family meals more than special. Bubby experimented by adding and deleting ingredients, or even changing some.

“I use schmaltz here instead of butter,” Bubby would instruct stirring the rendered chicken fat into a pot, “because to use butter isn’t kosher – and you need to add some flavor.” Schmaltz rendered from a chicken or goose (but not pork) is popular in Jewish cuisine, it was used by Northwestern and Eastern European Jews who were forbidden by kosher dietary laws to fry their meats in butter or lard. Even when I was growing up in the 1970s, other kinds of cooking oils that would be kosher, such as olive and sesame oil, were not yet widely used.

Bubby wrote the changes to her recipes in the margins of that old book. When she died – that book contained the secrets to her cooking. Without it, there would be no real way to replicate what she made and how she made it. So it was very fortunate that she wrote down her methods – scrawling through and adding her notes to the published recipes which created her own.

But scrawling changes on your legal documents normally isn’t a good thing. I usually ask new clients who are visiting me in my office to bring with them their current wills and trusts. From time to time I’ll see that the original documents have been crossed through, with notes or changes written in the margins much like my Bubby used to in her cookbook.

“What’s this change?” I’ll ask.

“Oh, that?” new client will respond, “I decided to change the bequest to my grandchildren from $10,000 to $20,000.”

“Do you realize that this change that you have written into the margin of the document has no legal effect?” I’ll ask.

“Really? I had it witnessed!” is a typical response.

Sometimes the change is more drastic – such as writing out a beneficiary. Other times the margin notes are intended to update the will because a beneficiary has died. Unless the will specifically directs who is supposed to get what in that event, Florida law will dictate who is next in line. Often the law is in conflict with the margin notes.

So my first challenge is educating the client that the margin notes have no legal significance. Unless a change to a will or trust is signed with the same formalities and under the same rules as the law directs when signing a new document,  then the change will be disregarded. Such changes, do, however, often breed litigation between the beneficiaries – some of whom may have an economic interest in the change.

In such disputes the result is usually large legal fees to the attorneys representing the parties – with the usual result that the hand written margin notes are negated by a court of law. It’s a rare instance when a court upholds any margin notes or changes.

So if you happen to have original will or trust documents that you’ve added your own notes to – you may want to restate the document – or have a proper codicil or amendment made that accurately reflects your intent.

©2011 Craig R. Hersch