Changing of the Guard
One major benefit of creating an estate plan is your ability to control your assets and interests now and far into the future. (In Utah Trusts can last up to 1,000 years!)
As long as you desire to be the person that manages your assets, and you retain your capacity to do so, you can be the sole person in charge. Many choose to set up a plan jointly with their spouse. This leaves both of you in charge for your lifetime.
Currently, about one in three Americans are dying with dementia. This makes the possibility very real that you or I may become incapacitated prior to our death.
Incapacity is measured in many ways. Under Utah law, a judge can make a determination that you are incapacitated. To do this, a court just find clear and convincing evidence that an adult has impaired ability to meet the minimum standards of financial management, physical care, and protection of your self and your finances. This is measured by a person’s ability to do three things: (1) receive and evaluate information, (2) make and communicate decisions, and (3) provide for necessities like food, shelter, clothing, health care and safety.
Naturally, no one wants to be found to be incapacitated. This reduces our ability to choose what happens to us. Unfortunately, it is a reality. Determinations must be made to protect ourselves and others. For example, if someone who is visually or mentally incapacitated chooses to drive a motor vehicle, this puts that person at risk of injury or death. Some like to joke that this is a convenient way to go. The reality is that in the US, approximately 10,000 are killed annually at the hands of aging drivers.
At some point, we will need to hang up our keys and leave the driving to others. The question is when? We can choose when that time comes, or others can choose for us. Frequently no one chooses, and we simply gamble our lives and the lives of others on the road or riding in the vehicle with us. Please take care!
If you stop driving, you can still choose your new mode of transportation. You may choose to take a taxi, the bus, ride a bike, or just tell your friends and family it’s their turn to do the driving.
Like driving, we have many other decisions to make regarding control of our assets and interest prior to death.
Finances: If you want to choose someone to help you manage your finances, you can sign a Power of Attorney. This document can take effect immediately, or it can be written to take effect after you become incapacitated. A General Power of Attorney normally gives the person named power to manage all finances and assets still in your personal name. This shows a great deal of trust in the person you choose. If you sign a power of attorney and then become incapacitated, it is normally not necessary to go to court to have a conservator named to manage your money for you. If you fail to sign a power of attorney, your family can go to court and seek to be appointed to be your conservator. This may or may not be someone you trust. Most prefer to sign a power of attorney to avoid this outcome.
Others will attempt shortcuts. A common shortcut is to name a child as a co-singer on your bank accounts. Bank employees see this so often they will frequently recommend it to you. Please remember that bank employees are not estate planning attorneys. What they aren’t seeing are the aftereffects when this shortcut goes wrong.
If you name a child as a joint owner, you create some risks. If your child signs a power of attorney, and then becomes incapacitated, whoever they named as power of attorney now has access to your joint account with your child. This person could be anyone, even a friend of your child from another state. Another risk is that your child might get divorced or get sued. In those cases, courts routinely require your child to report all accounts with their name on them. Suddenly your child will have the responsibility to defend your account and prove it is not their money. If this goes poorly, your money can be at risk. If your child dies before you do, we no longer have someone managing the money, both before and after your death. A power of attorney solves all of these problems, listing additional people that can serve in place of the first person you choose. Most couples name their spouse first and some of their children in reserve.
Health Care: If you wish, you can sign a Health Care Directive, naming agents that can make decisions for your health care when you are unable to do so. Here again, this is your opportunity to choose someone you trust. If you don’t sign a Health Care Directive, any of your family members can go to court and seek to be appointed as your guardian when you have become incapacitated. Often, no one does this, and when you are in the hospital with a serious condition and decisions need to be made, the doctors will simply ask whoever is present to decide what to do.
If you are trying to avoid probate, and you own real estate, it is critical to get the home out of your personal name prior to your death. Most will choose to place their home in a revocable Trust. This leaves you in control of the home as long as you have capacity to do so. Once you become incapacitated, my trusts offer two options: (1) your successor trustees can go to court and ask a judge to make a determination of incapacity. This would automatically transfer control of your home to the successor Trustees. Or, (2) the successor trustees can take you to two independent doctors, who will write letters certifying your incapacity. In my trust, when this happens, you will still have the ability to object, nullifying the automatic transfer of power, and forcing the successor Trustees to go to court to prove your incapacity. You would then have the opportunity to prove your own capacity with records from your own doctor.
Some choose to find a shortcut to creating a Trust. Instead, they may add their children as joint owners on their deed recorded with the county. This shortcut can sometimes work, but most of the time it is an enormous error. If your children choose not to move into your home at the time of your death, (and most won’t as they already have a home), and live there for at least two years, they will be required to pay the full capital gains tax when the home is sold. This is calculated at approximately 20% of the increase in value from the date the home was purchased to the date the home is sold. If you don’t use this shortcut, you can wait to give your home to your children after your death, and they will benefit from a total waiver of all past capital gains taxes accrued up to the date of your death.
Your opportunity to control your assets and health care is available to you now, as long as you remain competent. If you want to choose people you trust, consider sitting down with us for a free consultation. Learn how you can take charge of your future and avoid some serious mistakes. To set up an appointment, text us at 805-410-8992 or call in at 801-210-1058.
