The U.S. Government Accountability Office is currently looking into allegations of conservator abuse in Connecticut, and particularly fraud and embezzlement by conservators assigned to look after the best interests of senior citizens. “The allegations point to guardians taking advantage of wards by engaging in schemes that financially benefit the guardian but are financially detrimental to the ward under their care,” GAO investigators concluded. “Victim’s family members often lose their inheritance or are excluded by the guardian from decisions affecting their relative’s care.”
From Rick Green of the Hartford Courant: http://articles.courant.com/2010-11-02/news/hc-green-probate1102-20101101_1_conservator-guardian-probate But it doesn’t have to be this way. Having your assets in a revocable living trust takes the decision of who manages your trust assets out of the hands of the court and places it into the hands of the people you’ve chosen to manage your affairs. Rather than create a separate blog post, I thought a chapter from my book “The Anti-Probate Revolution” would be more instructive:
Chapter Four — “Living Probate”
The middle-aged woman stood in the middle the bank floor screaming at the manager, her face distorted with rage and tears flowing down her cheeks, but the words coming through clear. “He’s my father, he’s in a coma, and you damn well better give me access to his money NOW!” The people standing in line to make deposits took a step back, and one young woman with a toddler turned and walked out the door, gently nudging her child ahead of her while looking back.. “Ma’am, I’ve told you we can’t do that…” “You stupid moron, give me his MONEY!” she screamed. “I have to pay his bills or he’ll lose the house, and I can’t do that without access to his accounts!” If she saw the security guard walk up behind her with his hand on his taser, she didn’t give any indication. “We’ve already called the police,” the manager said, trying to remain calm. “I know you are in a difficult position, but we told you to hire an attorney to help you get access to his accounts. Please leave now.” “How am I supposed to hire an attorney, idiot!” she yelled, turning to walk out the door. “I don’t have the $5,000 the attorneys keep asking for. All of his money is in the accounts I can’t get to!”
Gail watched as the woman stormed out the door, trying unsuccessfully to slam the glass doors behind her. Gail then walked up to the bank manager. “Wow, are you OK?” she asked. “I’ll be fine,” the manager said, rubbing his forehead. “I really feel bad for her, but I can’t just open up a client’s bank accounts to someone without the legal paperwork.” He straightened up, composing himself, and asked Gail, “What can I do for you?” “Unfortunately, it looks like my mother is in the same kind of situation,” Gail said. “But all of her accounts are owned by her living trust, and I’m her successor trustee. I was told you already have a copy of her trust on file and paperwork showing I’m the successor trustee, but here’s the form from your bank that is signed by the doctors declaring her unable to handle her own financial affairs.” The manager took the form and looked it over, a slightly skeptical look coming over his face for a moment. But only a moment. “Here are the business cards of the doctors at the hospital,” Gail said. “They said if there were any questions to call them.” “That’s not necessary,” the manager said. “I’ve worked with a few living trusts before, and it appears that everything is in order. Come with me, we’ll pull up your father’s file, and hopefully we can get you access to his accounts by this afternoon.”
While most attorneys focus on the “estate” part of life and estate planning, there are huge potential problems with a person becoming gravely ill but not passing on. And, believe it or not, having the right documents in place is far simpler and inexpensive than planning for an estate, but the revocable living trust can greatly help in this situation. It can help avoid living probate.
Living Probate is not a legal term, but instead it refers to incapacity and the complicated, costly, aggravating, and humiliating process of declaring a person incompetent and assigning them a legal guardian (sometimes called a conservator). Basically, when someone suffers an injury or debilitating disease that affects their ability to care for themselves, someone needs to step in and take care of them.
The question is how easy do you want this process to be for your loved ones if you are the person incapacitated? How expensive do you want it to be? How long do you want the process to take control? For most, the easier the better, the less expensive the better, and the quicker the better. There are several severe problems associated with a living probate, including a period of time where finances are frozen, uncertainty of control, and the expenses of having finances and healthcare decisions turned over to other people. And there are documents to help in this area, but, unfortunately, there are still a lot of attorneys who look at these documents as a nuisance simply because they are inexpensive and avoid legal problems they could be paid for in the future.
The Revocable Living Trust
The Revocable Living Trust is a highly effective tool for avoiding problems, expenses and delays when someone passes on, but it is also a godsend if someone becomes incapacitated. A good trust will contain provisions dealing with incapacity, including the process for removing the person as a trustee, replacing them with another trustee, and then the conditions under which the person can take back their trusteeship when they recover. And from there, the trustee is the person handling all of the assets in the trust to take care of you.
No court proceedings. No frozen trust assets. No delays. It all happens according to the terms of the trust.
In the case of a joint trust, when one person becomes ill, the other trustee is there to simply take over. For spouses and partners alike, the other person typically does not need any procedures or formalities to start utilizing the trust assets. The only instances where some paperwork may be needed may be to stop the ill person from using their assets. There are plenty of people suffering from the beginning stages of Alzheimer’s or dementia, but they may seem perfectly fine to a bank teller or financial firm. In order to take away their authority to handle accounts within a trust, it is typical (for good revocable living trusts) to have 2 physicians certify in writing that they can not handle these matters themselves.
Another situation may be if there is a single person in charge of a trust, or if it is a joint trust the other trustee has passed on or is incapacitated. In that case the physicians certainly have to declare the trustee unable to handle their own affairs, and then the terms of the trust name a “successor trustee” who can step in and begin handling things. In this case, once the trustee has been declared unable to handle things, the successor trustee can immediately start managing the assets during the time of illness.
Conversely, once the person has recovered, physicians can attest that the person can now handle things themselves and they can be reinstated as trustee. Far too often inferior trusts do not provide for the reinstatement of the person as a trustee, so it is conceivable that they may be cut off from controlling their trust. Of course, it is likely that the person can go to court to legally reclaim their trust, but that involves paying an attorney to handle that proceeding.
Let me be clear about this—in a correctly drafted, executed, and funded revocable living trust, the successor trustee can handle all assets controlled by the trust during a time of illness. If accounts have not been transferred into the name of the trust, then the trustee is not allowed to control them. For those assets, there is a durable general power of attorney.
The Durable General Power of Attorney
The durable general power of attorney can be an extremely useful document during a time of medical crisis. Second only to the revocable living trust in terms of importance, the power of attorney can help someone take control of an ill person’s non-trust assets during incapacity.
As previously mentioned, there are some strong income tax benefits to keeping retirement accounts in an individual’s name. During incapacity, a durable general power of attorney may become critical to reaching the money in those accounts to pay for medical or other expenses. Even with the best Revocable Living Trust in the world, retirement accounts outside of the control of the trust still need a power of attorney for access. Otherwise, the court proceedings are needed.
Another important factor in working with assets for an incapacitated person is making sure all of the assets that can be inside the trust do end up inside the trust. Far too often, revocable living trusts are left unfunded or there are a few accounts opened up after the trust is formed and they are titled in the person’s individual name rather than the name of the trust. Therefore, an important provision in the power of attorney is the ability for the power of attorney agent to transfer assets into the name of the trust and complete the funding process.
One other important use for a durable general power of attorney is in case of stubbornness or an inability to grasp the concept of a trust. Many times the people handling changes to accounts or allowing access to accounts are not familiar with the concept of a revocable living trust. However, it is far more likely that these same people have been instructed on the use of a power of attorney. Therefore, having a power of attorney on hand can still assist with trust assets.
The Healthcare Power of Attorney
One of the most common horror stories for married couples revolves around one spouse dying, the survivor falling ill, and multiple children with conflicting views bickering while the doctors and hospital wait for orders to help the dying parent. If the parent had a healthcare power of attorney, they could have assigned one child, or someone completely different, to make their medical decisions if they are not able to. The situation is worse for unmarried couples where family members may swoop in and take control of healthcare decisions, kicking out the partner and not even letting them see their loved one. Having a healthcare power of attorney allows the partners to assign each other as the primary healthcare agent and then each person can list their contingent agents.
One of the most important things to keep in mind with a healthcare power of attorney is that decisions between healthcare and finances can be kept completely separate. A healthcare agent can be different from a trustee and power of attorney, and this often helps people who are trying to find “the perfect person” to handle everything. There is no need. One person can be in charge of healthcare and another can be in charge of finances.
When it comes to healthcare items, there is a strict division of duties between the trustee/power of attorney and the healthcare agent. The healthcare agent is empowered to make all health and medical decisions. They are not required or allowed to handle the medical bills. That is up to the trustee/power of attorney. So the person you feel best able to make the best medical decisions can make those decisions, and the person you feel best able to handle finances can use your assets to pay for the medical care.
One thing that should be similar in the durable power of attorney, the revocable living trust, and the healthcare power of attorney documents is that they all should contain waiver language regarding the Health Insurance Portability and Accountability Act of 1996. This Act was well-intended and extremely effective in stopping doctors and healthcare providers from selling personal medical information to marketing companies. However, there are certain aspects of the law that make it difficult for someone else to make medical decisions for you. While it sounds nonsensical, your healthcare agent would be fully empowered to make medical decisions for you under a healthcare power of attorney, but the law would prevent doctors from giving you medical information in order to make a decision. The same goes for a durable general power of attorney. The power of attorney agent could be fully empowered to pay all medical bills, but hospitals would be legally barred from providing an itemized bill. HIPAA waiver language should be incorporated in both documents or as a separate waiver document.
It is also common for healthcare power of attorney documents to incorporate language regarding the agent making end of life decisions, such as keeping or withdrawing life support or artificial nutrition and hydration. However, most of my clients prefer to make those critical decisions themselves ahead of time in a Living Will. For more information on Living Wills (also known as Advance Healthcare Directives), please read Estate Planning for Married Couples or Estate Planning for Domestic Partners, both available at www.theestategeek.com.
While a Revocable Living Trust can be a crucial part of an integrated estate plan, it can also become an extremely important part of helping a family manage assets during a medical crisis. When used in conjunction with a healthcare power of attorney and durable general power of attorney, living probate and all of its accompanying costs, delays, and aggravation can be avoided.