Archive for the ‘Banking’ Category

 

A power of attorney is the most overlooked and under-loved document . . . but, oh, so important. Even then, a person with a power of attorney may not have all the fire power needed.

Also, I wrote earlier on how a power of attorney is an important way to avoid a common banking error. You can read about these make-or-break documents in less than 3 minutes right here . . . or if you want something a bit more in depth, just click on the video below and you can watch an excerpt from Elder Law University’s session on powers of attorney (the video is about 20 minutes long).

What Is A Power of Attorney?

A power of attorney (or a POA) is an instrument in which a person called a “principal” appoints a person called an “agent” or an “attorney in fact” to manage some or all of the principal’s financial affairs.

By the way, an “attorney in fact” need not be (and usually isn’t) an attorney. The word “attorney” comes from the old French Norman word “attourne” meaning “one appointed.”

Is All This Really Necessary?

Without a power of attorney, if a person becomes incapacitated many of her affairs may be unmanageable without a court-appointed guardian or conservator. This will likely involve paying an Appointed One (ok, ok . . . an attorney) to bring a conservatorship petition, court supervision of the conservator, likely payment of a bond, and add all sorts of additional pressure on the family.

It doesn’t matter a bit that the incapacitated one is married because the ability of a spouse to manage many affairs is limited.

In fact, as I have written, if a principal is concerned with managing money in case she becomes incapacitated, a power of attorney is a much better way to manage money than setting up a joint account with someone else (perhaps a child).

Broad? Or Narrow?

A POA can be very narrow. “I hereby appoint Joe to manage my checking account while I am out of the country through next month.”

A POA can be very broad. “I hereby appoint Joe to do anything and everything I could for myself until further notice.”

“Durable” confuses many. In many states a POA will become invalid after the incapacity of the principal unless the POA specifically states that the POA continues in effect after the incapacity of the principal. In any event, to use quaint terminology, a POA designed to last beyond the incapacity of the principal is said to be “durable.”

Now? Or Later?

A Principal may wish to appoint an Agent with immediate authority to act, but subject to a mutual understanding that the Agent will not do anything until needed. Thus, an “immediate” power.

On the other hand, the Principal may be a bit nervous about vesting too much power too soon in the Agent and might prefer to specify that the POA does not become effective until after the incapacity of the Principal. Thus, a “springing” POA.

My usual question to a client wanting a springing POA is: If you don’t trust the Agent NOW, how can you trust her LATER when you won’t be able to do anything about it?

Is It Christmas Yet?

By the way, unless the POA specifically allows for gifting, the Agent won’t be able to make gifts, even if the POA is otherwise broad. Gifting, by the way, isn’t referring to Christmastime, it is referring to the ability to move assets around for planning purposes . . . which could be critical.

Back to the old trust issue. Restrictions can be put on gifting. Perhaps written permission from a sibling, a trusted advisor or friend.

POAs are important. And tricky. The best approach is to have an attorney draft one for you.

Can Social Security be garnished? Can a debt collector take your Social Security benefits?

The collector from the credit card company just keeps calling. “Look . . . pay these bills of your husband’s or we’ll sue. We’ll get a court order taking part of your Social Security and your bank accounts.”

Can they do that? Not to your Social Security benefits . . . and as for the rest of your bank accounts, it depends. In any event, be careful.

The usual way for a creditor to collect on a debt, short of simply bullying you or shaming you into paying up, is to sue. Once the creditor obtains a judgment for the debt, the usual strategy for collecting is to either garnish a part of income or levy on the bank accounts of the debtor.

What if the debt is just one spouse’s?

Often older couples come to a late marriage with their own debts, and they agree to keep their finances separate. If each spouse truly keeps his or her affairs separate and does not contract a debt along with the other spouse, or in some way guarantees the debt, the nondebtor spouse is not responsible. Usually.

Some states use the old English “Doctrine of Necessaries.” North Carolina is one of them. Under that doctrine, a spouse can be responsible for the debts incurred for goods and services that were necessary for the health or well-being of the debtor spouse. Medical expenses are chief among those.

Social Security Benefits Are Armor-plated . . . Sort Of

Even if the Doctrine of Necessaries applies, though, Social Security benefits rate a high level of protection. Generally, under federal law creditors may not touch Social Security benefits. Two notable exceptions apply. The benefits remain subject to alimony and support payments, and, of course, to federal tax liabilities. But other than those: Hands off!

That’s not the end of the story. It has to be handled right. While Social Security benefits are always exempt from general creditors as they are paid, whether the payments that are not spent and that are deposited into an account remain protected after deposit depends on a number of factors.

If the funds have been commingled with other funds (maybe general savings from company pension plan payments) they’ll lose their protected status.

If the funds are “pure” Social Security payments that have accumulated in an account the funds theoretically are protected. I say “theoretically” because you will need to prove to a bank that there are no other funds at all in the account. That may be difficult. The best time to make that proof is in front of a judge when you or a spouse is getting sued . . . but that doesn’t always happen.

If the issue has you concerned, one of two approaches may work:

• Talk to the bank and ask them ahead of time. Of course, you may feel a bit funny doing that. Stuff like that makes some bankers nervous.

• Change from automatic electronic deposit to an old fashioned paper check, cash the check and keep the funds somewhere safe. Of course, this raises some obvious security concerns . . . but it is an option. If you currently receive electronic deposit, you can switch to paper by going to Social Security online services and making the change (you’ll need to create an online account and get a password). If you don’t want to bother with that, call 800-722-1213.

That’s it! If you are interested in how to get the creditor to “quit bugging you” just comment below and I’ll do a post on that.

Many people make big mistakes titling bank and investment accounts. Often advisors and bankers advise customers to “put your child’s name on the account” or to set the account up as a “pay on death” (or “POD”) account. However well-intentioned the advice, the results of either approach to titling an account can be surprising and unpleasant. Good intentions do not constitute good advice.

The Allure of Joint and POD Accounts

Often, the attraction is probate avoidance. Either a joint account with survivorship features or a POD account will pass as a nonprobate asset and avoid the state-mandated probate process.

With respect to joint accounts, the attraction is often convenience. Unlike a POD account, a joint account holder has immediate co-ownership rights, and, thus, immediate access to the account. An older person may feel better knowing that a trusted son or daughter has immediate access to an account “in case something happens.”

The Dangers of Joint and POD Accounts

If the POD or joint account payee is a child with disabilities, the result could be terrible for the child upon the parent’s death because the receipt of the account could jeopardize continuing qualification for public benefits such as Medicaid or SSI (to the extent those programs are relevant).

There are other compelling reasons why a “joint account” may not be the proper approach:

The co-owner child now owns the account as much as the parent. What if the child is sued? What if the child goes through a messy divorce? Or what if the IRS takes a keen interest in the child’s affairs? Those events happen to the best of children; nevertheless, in those cases the joint account will be deemed to be owned by the child.

Another problem is that the co-owner/child’s siblings may be “out of luck.” This happens all the time. For example, Mom wanted the kids to share equally, but after Mom is gone Sis suddenly “recalls” that Mom wanted her to have the accounts since she “was the one who always helped Mom.” Because Sis was a co-owner of Mom’s accounts and likely had “survivorship” rights, she owns the accounts now – and there is nothing an attorney can do about it.

A Better Way

If the goal is asset management in the event the owner becomes incapacitated, the best approach is a properly drafted power of attorney.

A “power of attorney” has nothing to do with appointing lawyers. The word “attorney” has its roots in an old French Norman word for “legal substitute”. A “power of attorney” is simply a document signed by someone called the “principal” appointing an “attorney-in-fact” or “agent” to manage some or all of the principal’s financial and business affairs.

The terms of the power of attorney control what the agent may, or may not, do. If the document covers a broad spectrum of duties, then it is a “general” power of attorney. An agent can be given very broad powers, and if that makes the principal nervous the instrument can require the agent to secure some other person’s permission.

It used to be that a power of attorney would lapse when the principal became incapacitated. That did not do any good if what was intended was to cover the situations when the principal did become incapacitated. The law stepped in and provided that a power of attorney could be “durable” (or be valid after the incapacity of the principal). Most powers of attorney now are “durable”.

If the goal is to avoid probate upon the death of the account owner, the likely better approach is a revocable (or living) trust. The assets in the trust will avoid probate. In fact, a revocable trust can also assist in post-incapacity management because a successor trustee named in the trust agreement can step in to handle continuing asset management. The assets in the trust are also protected from the trustee’s personal liabilities (in other words, the trust assets are not exposed to the trustee’s own problems with creditors).

Finally, all of the above considerations especially apply if there is a child with disabilities. There will rarely, if ever, be an appropriate time to name a child with disabilities as the co-owner of a joint account or the beneficiary of a POD account. Carefully consider a special needs trust, either under a will or as buy clomid online part of a revocable trust, to hold that child’s intended inheritance. Properly drafted, the special needs trust assets will not jeopardize the child’s continuing eligibility for various public benefits.

Here’s the point: Do not put the kids on the accounts as a joint owner. Instead, execute a power of attorney that grants the sorts of powers to the kids you are comfortable with to take over business affairs when, and if, they need to. Alternatively, consider a revocable trust. In the meantime, keep the accounts in your name.

The downside to the advice given here: Some fees to a lawyer. There is, however, an upside: You may avoid a train wreck.