4 Reasons to Consider a Custom Financial Power of Attorney

We all want to save time and money when possible. So, when clients ask me if pulling a generic power of attorney form off the web, like the standard Wisconsin power of attorney for finances, will work, I understand the motivation to put a crucial document in place quickly and economically. A generic form is valid and will give your agent certain powers to manage your finances. However, they do have limitations to be aware of.
Often a generic form will lack provisions that may be necessary for making complex financial decisions to ensure your plan is carried out. We often face navigating more complex financial situations when planning for Medicaid. You should consider the following four factors before using a generic form.

• No Ability To Create Trusts. A generic power of attorney for finances will allow your agent to deal with trusts you have already created, but it will not authorize your agent to create new trusts. A trust may need to be created as part of your estate plan, especially if you desire to protect assets. Medicaid planning routinely uses trusts to protect your assets. A custom power of attorney for finances can allow your agent to create irrevocable trusts, special needs trusts, or pooled-trust accounts (e.g., Wispact) for you.

This trust-creation ability for your agent can be vital, especially when dealing with special needs planning. If the power of attorney document doesn’t allow your agent to create certain trusts, a guardian must be appointed to carry out that task.

• No Ability To Change Beneficiaries. Changing beneficiaries on life insurance, annuities, or retirement benefits is sometimes necessary to adjust your plan to life’s changing circumstances, especially when undertaking Medicaid planning. A generic power of attorney for finances will allow your agent to do many things related to those types of assets, but it will not allow your agent to change beneficiaries. Your beneficiaries may need to be changed to avoid leaving assets to someone who cannot receive assets due to being embroiled in a divorce or going through bankruptcy. Special needs planning also makes flexibility with beneficiary designations vital. In addition, some assets must have the State of Wisconsin listed as a beneficiary in order to qualify for Medicaid. Not having the ability to make that change may prohibit receiving benefits you may need. A custom power of attorney would authorize your agent to make those necessary changes.
• Limited Gifting. When conducting Medicaid planning, it is often necessary to make gifts to achieve certain goals. A generic power of attorney will limit your agent’s ability to make gifts by requiring gifts to be less than the annual gift tax exclusion (currently $17,000). Although this limitation helps protect you from your agent making excessive gifts, it may limit your ability to engage in Medicaid planning.

 When engaging in Medicaid planning, it is often desirable to make gifts in excess of the $17,000 exclusion. A custom power of attorney for finances can provide both flexibility and protection. It can limit your agent’s ability to make gifts under normal circumstances to a maximum amount and provide an exception to allow your agent to make larger gifts under certain circumstances, such as Medicaid planning.

• No Ability To Classify Property. For a married couple in Wisconsin, the ability to classify property as individual or marital is a key component in Medicaid planning. A generic financial power of attorney form does not provide your agent with the ability to enter into any type of marital property agreement. To properly plan for Medicaid, a married couple should have the ability to classify or re-classify property. Even some custom powers of attorney limit the types of marital property agreements that can be entered into, so you should have an experienced elder law attorney review or draft the power of attorney to ensure the necessary powers are given to your agent.

Sometimes life can be more complicated than we prefer. While there is a time to simplify things and to be thrifty, when dealing with the uncertainties of life and management of your assets, it is preferable to pay for professional services to make sure your agent can do everything necessary to make sure your plan remains in order and you receive the care you need. Before you download a generic form and call it a day, schedule a consultation with us to discuss your own custom financial power of attorney.

Nearly as important as creating the trust is the concept of "funding the trust." The trust itself is the "vehicle" for your assets; your assets are the "passengers" and must get into the vehicle in order for the trust to do its job properly. If you don’t properly fund the trust, your assets may have to go through Probate, simply to get into the trust!  That can defeat some of the purposes for creating a trust.
            For Real Estate, this means that deeds need to be prepared and properly executed for transferring ownership of real estate into the trust.  Some people prefer not to record the deeds during their lifetime for a variety of reasons.  This is acceptable, but we do recommend that the deeds be prepared and be in recordable form.  However, sometimes original documents are misplaced or accidentally destroyed; keep this in mind.  For vehicles, the same is true.  Titles should be prepared in assignable form so that they can be immediately transferred to the trust.  Again, some people, for convenience, prefer not to make the actual conveyance through the motor vehicle department during their life. 
            You should be sure to have your Bank Accounts, Stocks and Bonds, properly transferred so that they are in your trust.  Most bankers and stockbrokers are familiar with this process and can assist you in making these transfers, as appropriate. 
            In addition to transferring assets at the time of creating the trust, it is important that any assets received later should likewise be transferred, or funded, into the trust.  For example, many people will change the vehicle that they own, many times.  It is important that not only the first car that you have, or car that you own at the time of creating the trust, be placed in the trust, but likewise that any replacement vehicles be properly titled or funded into the trust.  So should you receive assets from some other source (gift, inheritance, earnings, etc.) they should likewise be funded or titled in the trust. 
            The proper title for any of these assets would be, for example:  "John A. and Jane A. Smith, trustees of the John A. & Jane A. Smith Trust dated December 31, 20XX, or its successor trustee."
             As described above, the Marital Property Agreement, if appropriate, can fund assets into the Trust, at either the death of the first spouse, or the second spouse.  The advantage of funding by way of the Marital Property Agreement, verses a Pour Over Will, is that the Marital Property Agreement does not have to go through probate, whereas a Will does. 
If you have questions regarding your Trust or any elements of your Estate Plan, please contact our office. 

This post continues our series about common problems or issues that arise in the context of Estate Planning. Part one can be found here.

In this post, I want to discuss two common, related problems that occur far more frequently than they should.  This is the use or misuse of the Wisconsin Statutory Health Care Power of Attorney and Durable Power of Attorney for finances.

From the attorney’s perspective, what often will happen is that we will meet with client, go through a thorough estate analysis, raise questions and get answers regarding the individual or couple’s choice of agents under both Health Care Power of Attorney as well as the Financial Power of Attorney.  Sometimes these discussions can be fairly brief, but in many cases, it can be quite thorough. 

At the conclusion and as part of the estate planning process, we draft the Health Care Power of Attorney and Financial Power of Attorney, send it to the client to review; they approve it, and eventually come back to the office to sign and finalize.  We will then take care of contacting the agents, to make sure they are aware that they have been named as agents, have them sign the proper forms acknowledging that they are aware that they are agents, and proceed to finish the Estate Plan. 

However, we later find that in an emergency, or sometimes not even in an emergency, the client winds up in a doctor’s office or the hospital and some well-meaning assistant, social worker, nurse, etc., will thrust a Health Care Power of Attorney in front of the individual, and say let’s fill this out and sign here.  The client does. 

What they have unwittingly done is revoke the Health Care Power of Attorney that was painstakingly produced at the attorney’s office.  They may have different choices of agents and more commonly than not, they leave large blanks in the document, because they never discussed this. 

Even worse, with the Statutory Financial Power of Attorney, much the same thing can happen.  Except now it is not at a hospital or clinic, but rather at the insurance agent’s office or a financial advisor, possibly a bank, and someone produces the blank Wisconsin Statutory Power of Attorney, and again it gets quickly signed and unwittingly revokes the one produced at the attorney’s office.  

To make this even worse, in my own opinion, the Statutory Financial Power of Attorney in Wisconsin is largely a useless document, because I have seen far too many cases where third parties, such as banks, insurance companies, or other financial institutions, will not accept the Wisconsin Statutory Power of Attorney, and now you have a document that is worthless, except that it revoked the earlier one which likely would have worked.
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Then, as if this were not bad enough, sometimes these freely available Statutory Financial Powers of Attorney are used by unscrupulous individuals, who will have a parent who may be vulnerable to influence or threats or intimidation, where they sign such a document, authorizing the unscrupulous person to have access to their accounts, or even to gift money in the accounts to themselves.  If you think it doesn’t happen here, you are wrong.  There have been numerous cases right here in the Chippewa Valley where elderly folks have been cheated out of hundreds of thousands of dollars by unscrupulous agents who employ these same tactics.