When we think about “estate or elder care planning” (actually most of us do NOT want to think about these things) what comes to mind? A living will, how to allocate assets, who will handle financial matters or make medical decisions if we are incapacitated, And who do we typically associate with these documents– ourselves or our parents.

CONSIDER THIS:  Your daughter just turns 18  and injures her foot at work, needs  emergency treatment. When Melissa panics, she can’t think straight.  She doesn’t consent to the stitches the surgeon recommends to stem the bleeding and prevent infection.  What can you do?  Your only recourse might be a court order (which would likely be too late.) Melissa is legally an adult, and is legally bestowed with all the rights and responsibilities that entails….Her doctor may not disclose her health care details to you under HIPAA. And no, it doesn’t matter that you are paying the insurance premiums.

Or, son Bentley is off to college, courtesy of your hard work over 20 years. You want to see his grades, but he refuses. Many colleges will not issue you a transcript without your showing legal authority. Or you get along great but he’s a hostage in Africa and you need to wire money from his account for ransom.  Or, even more simply, he is on a silent Buddhist retreat and forgot to sign an apartment lease that is now due.

You get the point — for a small investment  (perhaps well under $1,000)  you can have a set of planning documents such as a  health care proxy and durable power of attorney prepared that will grant you permission to act on your child’s behalf in certain situations. And how to convince them to sign?  Gentle persuasion works best, but parents have been known to make tuition or a car, for example, dependent on cooperation.

Pictured here, is my son Yonah, who injured his hand at work and needed emergency treatment.  Thank God we agreed on treatment — we don’t have those docs yet!

E-mail me if you need  the name of a local attorney who can help you (like the one who is helping me, and whose counsel inspired this article.)

ARE WE PREPARING YOUR TAXES?
CLICK HERE FOR TAX CHECKLIST.

The beginning of the year is a good time to check your withholding allowances. Are you perpetually behind, or need more money in your paycheck? Remember that you can claim any filing status and number of exemptions on the W-4 for your regular withholding during the year. Read my article.

Don’t rely on 1099’s to tabulate your income, free-lancers. You are responsible for reporting your income accurately, whether or not you receive a 1099. Business owners, make sure your contractors fill out IRS Form W-9 before you hire them, so you can issue them a 1099 if needed. (Doing someone a “favor” by not issuing them a 1099 means that we’re all paying their taxes.)

Reprinted with permission of AppZen

Insurance: Businesses, do you have a “fidelity bond” or employee dishonesty insurance”?  On my first non-profit audit we discovered embezzlement. One of my first business engagements was investigating fraud at a large medical practice. Appropriate controls are important to reduce the threat of fraud; appropriate insurance is necessary to help you recover in case it does happen.

Elder care planning:  Another relaxing subject! Nevertheless, a necessity for kids and parents to start discussing. Contact me to discuss further and to be directed to appropriate resources.

IRS Letters! Don’t panic if you get them, but don’t sit on them either. Because of the IRS’ woeful budget, errors are plentiful and corrections are slow —  you may be getting bills for $12,000 when I sent in the correction making it a refund months ago, but they have not processed it yet.  But don’t be like the non-profit that passed the envelope around like a hot potato for a year without opening it; as a result they missed deadlines and had to appeal to have several thousands of dollars in penalties waived.

UPCOMING EVENTS

I will be back at the fabulous Artisan’s Asylum makerspace in Somerville, MA on Thursday night January 21, 2016 to discuss Tax and Incorporation issues. Join me at 7pm for a short talk, gathering, and refreshments. Free, register here.

NEW BUSINESS CHECKLIST!

Thinking about establishing a small business in Rhode Island? Check please read this article for a list of essential steps, from deciding on your legal structure to staying in good standing on an annual basis.

Congratulations parents of graduates from high school and college! Time to celebrate and prepare for the next stage of life for your children.  While always children in your eyes, upon reaching the age of 18, all individuals are ADULTS in the eyes of the law, both state and federal, with a slew of rights and privacy protections that did not exist when they were 17 years and 364 days old.

3 Essential Documents:

A Financial Power of Attorney allows your child to appoint someone (just like you) as their attorney in fact to carry out banking transactions, sign tax returns, arrange for insurance pay bills, deal with a landlord, or replace a lost debit card whether the child is incapacitated or simply away at college.  Without this financial power of attorney, parents would not have legal authority to act on their children’s behalf.  The alternatives are incurring personal liability for their children or seeking a guardianship in the Probate Courts.

A Health Care Power of Attorney (Proxy in Massachusetts) allows your child to select an agent to make health care decisions in the event that they are NOT ABLE to make informed decisions about their health care, for instance if they are unconscious or unable to communicate.  The September 21, 2013 Wall Street Journal article Why Your College-Age Children Need an Estate Plan  relates the story of parents unable to secure basic information about their college age children after a car accident left the children in the hospital and unconscious.

A HIPAA Authorization allows your child to list people with whom they want their health care providers to share OTHERWISE PROTECTED information.  Doctors and hospitals have a duty to protect patient privacy regardless of who pays the bills.  Just because your adult child is covered by your insurance.  (which  you are paying for) doesn’t mean you can access their protected heath information, as the parents in the Wall Street Journal article discovered.

Internet forms work just the same as the documents prepared by attorneys, right?

Sometimes yes.  But you take a big chance. A client who was helping an elderly relative using her financial power of attorney sent me a letter from a financial institution which would not recognize the power of attorney unless they received a letter from our office with the following language:

As a practicing attorney in the state of Rhode Island, I certify that the attached Power of Attorney signed by … is a true and accurate copy of the original and is in full force and effect.

We also get calls from clients at banks trying to use the power of attorney and the bank employee tells them the bank cannot accept the document.  Despite the prior drama with the bank, we typically resolve the confusion with a single telephone call and educate the bank employee or their manager..  Parents, please consider a possible gift of these properly drafted and executed estate plan documents.

CAVEAT: these documents are not as cool as a car.

1. Parish Lentz focuses his practice on estate and trust planning and administration, as well as business formation and ongoing representation of corporate clients, including non-profit entities. His estate and trust planning practice includes litigating disputes in state court, including trust reformations and accountings, will contests, and guardianship proceedings. Recognizing the uncertainties and costs of court oversight, Mr. Lentz makes every effort to ensure that estate plans reflect the goals of clients.  http://www.bartongilman.com/our_people/w-parish-lentz

If you have a will—or don’t have a will—your estate must be probated. Probate is a court process where your assets are gathered, bills are paid, and the residue is distributed to your heirs. It can take anywhere from 6-18 months for an average case, partly because Rhode Island has 39 part-time probate judges. For example, Tiverton probate court is in session only one day a month.

Few people can navigate the probate labyrinth without the aid of a lawyer. Most grieving heirs use the lawyer who drafted the deceased’s will, or if there was no will, they use their cousin’s mother-in-law’s neighbor’s lawyer.

So what does probate cost? Let me use numbers from a real case that recently crossed my desk. Joe died leaving an estate of about $130,000 in cash and securities, a stamp collection, and a jewelry collection. He left the jewelry to his niece and the stamps to his nephew (Joe had no children). After the bills were paid, the rest was to go to two charities. A year after his death, the final bill was submitted. His personal bills added up to about $4,700, which was close to the amount in his checking account. But the fees attributed to the probate were:

The probate costs could have been avoided.

• The fee (inventory tax) to probate an estate in RI is equal to 1% of the value of the deceased’s personal property at death up to a maximum of $1,504. Joe’s personal belongings didn’t add up to much except for those collections, which turned out to be pretty valuable. Because there is no gift tax in Rhode Island, he should have given those away before he passed.

• It is hard to imagine what “unforeseen expenses” will arise a year after Joe’s death. Part of the probate process is publication of the personal representative’s name so that creditors know to whom to send the bill. (Cost $76.) Then creditors have 6 months to present their claims. Creditors may petition the court to file after 6 months as long as the estate has not been distributed. This money will eventually be given to the heirs, but probably after the attorney has deducted additional fees.

• The executor here was a professional rather than a friend or family member. Joe’s will says the executor is entitled to “a reasonable fee.” The executor had to hire someone to clean out Joe’s apartment, make sure the niece and nephew got the collections, write 13 checks, and make a couple of court appearances. What do you think is a reasonable fee? If the attorney, who also drafted the will, had suggested that Joe name someone from the church to which he was leaving half the money, I bet the executor’s fee would have been substantially less.

• Included in the attorney’s fee are the court costs, but even if those were $500, the attorney would have had to put in 30-45 hours to justify that fee. (Little secret: paralegals do most of the mundane probate work.) A revocable (also known as a living) trust would have avoided the need for an attorney to open a probate. It might have avoided the need for an attorney altogether.

A revocable, or living, trust can avoid probate. You establish the trust during your lifetime, title your assets into the trust and make it the beneficiary of your life insurance (consult an attorney before you make a revocable trust the beneficiary of your qualified retirement accounts), and at your death, a successor trustee steps in and pays your final bills and taxes and distributes the residue to your heirs. No public list of your assets. No long waits for a court date. No judge’s approval to sell your house or distribute the residue. Most successor trustees can do it without the aid of an attorney, and for a lesser cost.

Yes, a revocable trust costs a bit more to establish than a will—now, but in the long run it costs thousands of dollars less than probate.

Zona Douthit devotes her law practice to estate planning for middle-class families. Visit her website www.zdtrustlaw.com or call 401-305-8094 for more information.