Category: Powers of Attorney

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It’s Planning Season

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To have a successful farm, thoughtful planning must be done every season. Your life is no different. To properly prepare for the next season in your life and the lives of your loved ones, you need a well-executed estate plan. When crafting a foundational plan to protect yourself, your loved ones, your business, and your legacy, consider the following planning tools.

Revocable living trust. A revocable living trust is a tool in which a trustee is appointed to manage the accounts and property that you transfer to the trust for the benefit of one or more beneficiaries. To fund the trust, you change the ownership of your accounts and property to your name as the trustee of the trust. Typically, you serve as the initial trustee while you are alive and well, and you are also the primary beneficiary. If you become incapacitated (unable to manage your affairs), the backup trustee steps in and manages the trust for your benefit with little interruption and less potential for costly court involvement. Upon your death, the backup trustee manages and distributes the money and property according to your instructions in the trust document, again, usually without court involvement. Because the accounts and property are deemed to be owned by the trust and you have already determined what will happen to them, probate is not needed. A specifically crafted trust has the additional benefit of protecting your precious asset (the farm) from your beneficiaries’ creditors.

IMPORTANT: Work with an experienced estate planning attorney to ensure that any trust created and funded with farming assets (real estate, equipment, etc.) is structured in a way that does not disqualify you from or reduce any government farming subsidies you could be receiving.

Financial power of attorney. A financial power of attorney is a written document in which you appoint a person to handle various financial and property transactions on your behalf when you are alive but cannot handle them yourself. This can include signing contracts for you, making deposits into your bank account, managing property, paying taxes, and opening new accounts for you. The specific powers granted to an agent under a power of attorney will depend upon your wishes and what you list in the document itself. Also, depending on your state law, you may be able to dictate when your chosen agent can step in and act on your behalf. If your land, equipment, and associated bank accounts are in your name only, it is incredibly important to have this tool in place so someone has the authority to maintain your business and associated transactions should you be unable to.

Medical power of attorney. Farming can be a very strenuous career. Having a medical power of attorney in place is, therefore, crucial. This document allows you to name an individual to make medical decisions on your behalf in the event you cannot. While this power is applicable only if you are incapacitated or otherwise unable to communicate your own wishes, it will save your family a great deal of time and money by avoiding the court process of having a judge appoint someone to make decisions for you.

More-advanced planning tools. Depending on the value of everything you own (including your farming operation), you may need to include more-advanced tools in your estate plan. We can craft a plan that may reduce the amount of state or federal estate tax owed at your death, offer additional liability protections, or provide liquidity to address your unique situation.

We understand how important your farm and family are to you. We want to help ensure that you are properly protected and that everything is in place to properly transition your farming legacy to the next generation. Call us to schedule an appointment so we can evaluate your unique situation and craft a plan to help ensure that your legacy will be a lasting one.

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Springing Financial Powers of Attorney

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Estate planning is about more than preparing for the inevitable. A good estate plan should also consider the unexpected. Your plan may have detailed instructions for what happens when you are no longer around, but what if something goes wrong while you are alive? 

If you can no longer manage your affairs, you will need somebody who can act on your behalf and in your best interest. A financial power of attorney (POA) is a legal document that lets you designate a trusted person to make financial decisions for you (sign checks, open a bank account, collect your mail, etc.). The financial POA can be immediate, meaning somebody else is authorized to act for you now and into the future, or it can be springing, that is, effective only if and when an event occurs (usually when you become incapacitated or unable to make decisions for yourself). 

While every estate plan should feature a financial POA, a springing financial POA requires a little more nuance to overcome its limitations. Additionally, even when carefully written, a springing financial POA can pose problems that may not be easily resolved. That said, some people dislike the idea of making a financial POA effective immediately. They prefer to have a financial POA kick in only when it is absolutely necessary. 

How a Springing Financial POA Works

A springing financial POA is conditional. It springs into action when you become incapacitated. This is different from an immediate financial power of attorney, which is not conditional. An immediate financial power of attorney is like an active permission slip that gives another person broad legal authority to take over your responsibilities the moment it is signed. By contrast, after a springing financial power of attorney has been signed, it remains inactive until it is needed. 

Defining Incapacity

When, exactly, is a springing financial POA needed? Generally speaking, it is needed when you become incapacitated. Incapacity can mean a lot of things, including mental illness, mental deficiency, physical illness or disability, advanced age, drug abuse, or unusual events such as being kidnapped or disappearing. 

The financial POA will usually define incapacity. Your doctor—or depending on how you set it up, your doctor and a second physician—must then examine you to confirm that you meet that definition of incapacity. When they sign off that you are medically incapacitated, the springing financial POA takes effect. 

What Happens When a Springing Financial POA Kicks In

After a financial POA springs, the person you have nominated to handle your affairs—known as the attorney-in-fact or agent—now is allowed to do what you would have otherwise done had you not become incapacitated. 

With any financial POA, whether immediate or springing, you can give the agent wide discretionary latitude to act on your behalf, including managing your day-to-day affairs, handling your investments, filing your taxes, collecting your mail, and operating your business. But you can also set up a financial POA so that the agent’s power to act is limited to particular activities, such as paying your monthly bills. 

In addition, a financial POA can be revoked in the future when it is no longer needed. The document should specify the exact language for revocation. It might state that you have the authority to revoke the financial POA any time that you are not disabled or incapacitated. Keep in mind, though, that revocation may require medical verification. Any signed financial POA is automatically revoked when you die. 

Potential Issues with a Springing POA

Giving somebody else authority under a financial POA involves some risk because they are typically not subject to ongoing oversight by a court or third party. The agent can abuse their powers and make decisions that are not in your best interest. 

Not having a POA is also risky. If you become incapacitated without a financial POA, your family may need to petition the court for a conservatorship or guardianship, which can take months and cost thousands of dollars. In the meantime, until a conservator or guardian is appointed for you, it may be impossible for anyone to manage your most important financial affairs. 

Setting up a springing financial POA helps avoid issues related to incapacity without giving your agent premature access to your affairs, but you should be aware of the following issues: 

  • Lag in effect. A springing financial POA does not take effect until you have been medically determined incapacitated. This process takes time even when no one is disputing your incapacity. 
  • Uncertainty about incapacity. Disputes may not arise about your level of incapacity if you are in a coma or suffer a serious, debilitating injury. But disputes could arise if you are in a state of slow decline where you have good days and bad days or alternating moments of clarity and confusion. Doctors, family members, and the agent could be in disagreement or outright conflict about whether you are incapacitated. Family members could challenge your incapacity in court. Until the uncertainty about your incapacity is settled, the agent has no authority to act. 
  • Financial institutions. Banks may be nervous about granting access to a customer’s account and have been known to decline financial POAs. In the case of a springing financial POA, the bank may want to see the financial POA document, the physician’s letter, and other documents to verify that the financial POA has been activated. Even then, they may refuse to honor the financial POA if it is more than a couple of years old. Some banks have their own forms for appointing an agent to manage your accounts with that particular bank. To avoid future trouble, it is important that you ask your bank about their specific requirements. In addition, you may wish to consult your estate planning attorney about how a revocable living trust can serve your needs if you become incapacitated.
  • State laws. Each state has its own laws about springing POAs. For example, as of 2011, Florida no longer permits springing POAs. Your POA must comply with state law and be legally enforceable in your state. If you move to another state, consider reviewing and updating your POA to ensure that it complies with that state’s law. 

A financial power of attorney is one of the most important estate planning documents you can have. If you have concerns that an immediate POA is overreaching, a springing power of attorney may be a good alternative. For further peace of mind, your attorney can walk you through the other estate planning documents, such as a medical power of attorney, an advance healthcare directive, and a revocable living trust, to ensure that you have chosen the right people to manage your affairs while you are alive and unable to care for yourself. For help with your estate plan, please contact our office.