Have you ever thought about what would happen to your real estate, bank accounts, investments and other property (your “stuff”) if you could not take care of them because of your mental disability due to an accident, illness or injury? How would your property be maintained, bills paid, income collected or property sold?
There are generally only two classes of people who can make decisions for you when you cannot: those whom you appoint and those whom the probate court appoints. If you have done no planning, no one would have the legal authority to act on your behalf during your mental disability without court involvement.
In order to handle your stuff, your loved ones would have to file in probate court to have a representative appointed to make your financial decisions. That representative is called a conservator. At the probate court hearing, the probate court judge first makes a determination if you are legally incapacitated and cannot handle your own affairs. If you are legally incapacitated, the judge then appoints a conservator to handle your property and finances.
The judge then decides what your conservator can do. The court may include in the appointment order, that any expenditures above a certain amount such as $200 or an annual limit of $1,000, require court approval. Between the time spent preparing and filing documents, serving court papers and attending the hearing, it could take over a month to get your expenses approved by the court, and at a substantial legal fee cost.
When an attorney is used for these expense approval proceedings, it could cost more in legal fees than the expense being requested for approval. This is not the result that most people would want. Most people would rather have their family or other loved ones they choose making these decisions, instead of the judge, who may not know them.
There are several planning opportunities you can use to avoid probate court to take care of your stuff. Probably the most common tool used for financial matters is a general durable power of attorney. This is a legal document in which you appoint an agent or agents to act on your behalf with regard to your property and finances.
Your general durable power of attorney can be effective either when signed or when you become mentally incapacitated. In your general durable power of attorney, you direct what your agent(s) can do what is necessary, all without court supervision. Your agent(s) can collect your income, pay your bills, deal with governmental agencies and do just about everything you could do to manage your stuff.
Most durable powers of attorney are general durable powers of attorney, in that they cover all of your stuff; anything you can do, your agent can do. However, you can have a limited durable power of attorney which would apply only to certain assets or for a specific period of time.
Financial powers of attorney are only good during your lifetime. They expire with you. There are other alternatives that you could use to avoid a probate court to take care of your stuff both during your lifetime and after your death. Two of these alternatives are a properly drafted and implemented revocable living trust and family limited liability company.
One of the best alternatives is a fully funded living trust. Having a trust is not enough, it must be fully funded. Funding includes the proper titling of assets in the name of your trust or individual names and/or proper naming of your trust and/or individuals as beneficiaries of your individually owned non-trust assets and as additional insureds on your liability insurance policies.
The funding of your trust is critical in making your trust work and having the results that you want. Failure to properly fund your trust will cause unintended results, which may include probate during your lifetime and after death, distributions not in accordance with your goals and objectives, additional taxes and additional administrative, legal, and other expenses. What is the point of having a trust if you do not put anything in it.
If you are no longer effectively managing your property or financial affairs, your named disability panel can remove you as trustee. Your named successor trustee can then step in and manage your trust assets for you.
Another alternative oftentimes used in conjunction with a trust, is a family limited liability company (“LLC”). With a family LLC, you typically would elect to be a manager-managed LLC and transfer your business and/or other investment assets into the LLC.
As with a trust, if you are no longer effectively managing your property or financial affairs, your named disability panel can remove you as the LLC manager. Your named successor manager can then step in and manage your LLC assets for you..
You do not need to have someone outside your family making decisions regarding your property if you are unable. Make sure your wishes are followed. Do proper planning today.
By: Matthew M. Wallace CPA, JD
Published edited August 24, 2013 in The Times Herald newspaper, Port Huron, Michigan as: Taking care of your ‘stuff’ when you cannot