What are Alternatives to Guardianship? – Annapolis and Towson Estate Planning

Guardianships are drastic and very invasive. They strip individuals of their legal autonomy and establish the guardian as the sole decision maker. To become a guardian requires strong evidence of legal incapacity, and approval by a judge, explains an article titled “Guardianships Should Be a Last Resort–Consider These Less Draconian Options First” from Kiplinger. They should not be undertaken unless there is a serious need to do so. Once they are in place, guardianships are difficult to undo.

If an elderly person with dementia failed to make provisions durable powers of attorney for health care and for financial matters before becoming ill, a guardianship may be the only ways to protect the person and their estate. There are also instances where an aging parent is unable to care for themselves properly but refuses any help from family members.

Another scenario is an aging grandparent who plans to leave funds for minor beneficiaries. Their parents will need to seek guardianships, so they can manage the money until their children reach the age of majority.

Laws vary from state to state, so if you might need to address this situation, you will need to speak with an estate planning attorney in the elderly parent or family member’s state of residence. For the most part, each state requires less restrictive alternatives to be attempted before guardianship proceedings are begun.

Alternatives to guardianship include limited guardianship, focused on specific aspect of the person’s life. This can be established to manage the person’s finances only, or to manage only their medical and health care decisions. Limited guardianships need to be approved by a court and require evidence of incapacity.

Powers of attorney can be established for medical or financial decisions. This is far less burdensome to achieve and equally less restrictive. A Healthcare Power of Attorney will allow a family member to be involved with medical care, while the Durable General Power of Attorney is used to manage a person’s personal financial affairs.

Some families take the step of making a family member a joint owner on a bank, home, or an investment account. This sounds like a neat and simple solution, but assets are vulnerable if the co-owner has any creditor issues or risk exposure. A joint owner also does not have the same fiduciary responsibility as a POA.

An assisted decision-making agreement creates a surrogate decision-maker who can see the incapacitated person’s financial transactions. The bank is notified of the arrangement and alerts the surrogate when it sees a potentially suspicious or unusual transaction. This does not completely replace the primary account holder’s authority. However, it does create a limited means of preventing exploitation or fraud. The bank is put on notice and required to alert a second person before completing potentially fraudulent transactions.

Trusts can also be used to protect an incapacitated person. They can be used to manage assets, with a contingent trustee. For an elderly person, a co-trustee can step in if the grantor loses the capacity to make good decisions.

Planning in advance is the best solution for incapacity. Talk with an experienced estate planning attorney to protect loved ones from having to take draconian actions to protect your best interests.

Reference: Kiplinger (July 7, 2022) “Guardianships Should Be a Last Resort–Consider These Less Draconian Options First”

 

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What Sparks the Contesting of a Will? – Annapolis and Towson Estate Planning

A last will and testament is the document used to direct your executor to distribute assets and property according to your wishes. However, it is not uncommon for disgruntled or distant family members or others to dispute the validity of the will. A recent article titled “5 Reasons A Law Will May Be Contested” from Vents Magazine explains the top five factors to keep in mind when preparing your will.

Undue influence is a commonly invoked reason for a challenge. If a potential beneficiary can prove the person making the will (the testator) was influenced by another person to make decisions they would not have otherwise made, a will challenge could be brought to court. Undue influence means the testator’s decision was significantly affected by a person who stood to gain something by the outcome of the will and made a concerted effort to change the testator’s mind.

Even if there was no evidence of fraud, any suspicion of the testator’s being influenced is enough for a court to accept a case. If you think someone unduly influenced a loved one, especially if they suffer from any mental frailties or dementia, you may have cause to bring a case.

Outright fraud or forgery is another reason for the will to be contested. If there have been many erasures or signature styles appear different from one document to another, there may have been fraud. An estate planning attorney should examine documents to evaluate whether there is enough cause for suspicion to challenge the will.

Improper witnesses. The testator is required to sign the will with witnesses present. In some states, only one witness is required. In most states, two witnesses must be present to sign the will in front of the testator. A beneficiary may not be a witness to the signing of the will. Some states have changed laws to allow for remote signings in response to COVID. If the rules have not been followed, the will may be invalid.

Mistaken identity seems farfetched. However, it is a common occurrence, especially when someone has a common name or more than one person in the family has the same name, and the document has not been properly signed or witnessed. This could create confusion and make the document vulnerable to a challenge. An experienced estate planning attorney will know how to prepare documents to withstand any challenges.

Capacity in the law means someone is able to understand the concept of a will and contents of the document they are signing, along with the identities of the people to whom they are leaving their assets. The person does not need to have perfect mental health, so people with mild cognitive impairments, such as depression or anxiety, may make and sign a will. A medical opinion may be needed, if there might be any doubt as to whether a person had testamentary capacity when the will is signed.

A will contest can be time-consuming and expensive, so keep these issues in mind, especially if the family includes some litigious individuals.

Reference: Vents Magazine (May 6, 2022) “5 Reasons A Law Will May Be Contested”

 

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Elder Financial Abuse Fraud Occurs, When No One’s Watching – Annapolis and Towson Estate Planning

The case of Nice vs. U.S. is a dramatic example of what can happen when there are no professionals involved in an elderly person’s finances and one person has the power to make transactions without supervision. In the article “Tax case reveals possible intrafamily fraud” from Financial Planning, a trusted son allegedly decimated his mother’s IRA and left her estate with $500,000 tax bill.

Mrs. Nice and her husband had been married for more than 60 years. Before he died in 2002, her husband arranged to leave significant assets for his wife’s care. Their son Chip was named executor of the husband’s estate and moved in with his mother. In 2007, she was diagnosed with dementia. As her condition deteriorated, Chip allegedly began fraudulent activities. He gained access to her IRAs, causing distributions to be made from the IRAs and then allegedly taking the funds for his own use.

Chip also filed federal income tax returns for his mother, causing her to execute a fraudulent power of attorney. The federal tax returns treated the IRA distributions as taxable income to Mrs. Nice. She not only lost the money in her IRA but got hit with a whopping tax bill.

In 2014, Mrs. Nice’s daughter Julianne applied for and received a temporary injunction against Chip, removing him from her mother’s home and taking away control of her finances. Chip died in 2015. A court found that Mrs. Nice was not able to manage her own affairs and Mary Ellen was appointed as a guardian. Julianne filed amended tax returns on behalf of her mother, claiming a refund for tax years 2006-07 and 2009-13. The IRS accepted the claim for 2009 but denied the claims for 2006 and 2010-2013. The appeal for 2009 was accepted, but the IRS never responded to the claim for 2007. Julianne appealed the denials, but each appeal was denied.

By then, Mrs. Nice had died. Julianne brought a lawsuit against the IRS seeking a refund of $519,502 in federal income taxes plus interest and penalties. The suit contended that because of her brother’s alleged fraudulent acts, Mrs. Nice never received the IRA distributions. Her tax returns for 2011-2014 overstated her actual income, the suit maintained, and she was owed a refund for overpayment. The court did not agree, stating that Julianne failed to show that her mother did not receive the IRA funds and denied the claim.

There are a number of harsh lessons to be learned from this family’s unhappy saga.

When IRA funds are mishandled or misappropriated, it may be possible for the amounts taken to be rolled over to an IRA, if a lawsuit to recover the losses occurs in a timely manner. In 2004, the IRS issued 11 private-letter rulings that allow lawsuit settlements to be rolled over to IRAs. The IRS allowed the rollovers and gave owners 60 days from the receipt of settlement money to complete the rollover.

Leaving one family member in charge of family wealth with no oversight from anyone else—a trustee, an estate planning attorney, or a financial planner—is a recipe for elder financial abuse. Even if the funds had remained in the IRA, a fiduciary would have kept an eye on the funds and any distributions that seemed out of order.

One of the goals of an estate plan is to protect the family’s assets, even from members of their own family. An estate plan can be devised to arrange for the care of a loved one, at the same time it protects their financial interests.

Reference: Financial Planning (March 6, 2020) “Tax case reveals possible intrafamily fraud”

 

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When Does the Fiduciary Duty Granted by a Power of Attorney Begin? – Annapolis and Towson Estate Planning

A recent case examined the issue of when the fiduciary duty begins for an agent who has been given Power of Attorney, as reported by the Chicago Daily Law Bulletin in the article “Presumed power of attorney fraud is main factor in joint-account fight.”

Soon after moving to Illinois from Florida to live with his eldest son, a man and that son opened multiple bank accounts, purchased certificates of deposit (CDs) from a bank where the son’s wife worked and transferred more than $60,000 from two of the man’s Florida bank accounts to Illinois banks. Soon after the man moved, his eldest son deposited more than $300,000 from the sale of his father’s Florida condominium into one of the father’s Illinois bank accounts.

The eldest son then withdrew money from the father’s accounts to pay for home improvement costs and other personal expenses. After the father died, the eldest son’s two brothers sued their older brother, accusing him of initiating numerous transfers of money that were not in their father’s or their best interests, and of exerting undue influence on their father, by convincing him to change his will after he moved in with the oldest brother.

The trial court ordered the older brother to repay more than $900,000 back to the estate, including almost $300,000 in prejudgment interest, and voided the revised estate planning documents that the older brother had his father sign. That included a revised will, trust and power of attorney that favored the older brother.

Once you are appointed as a power of attorney, you become a fiduciary—that is how most state laws work. That means you must act first in the interest of the person who has appointed you. The law states that an agent owes a fiduciary duty to the principal. Period. Any transactions that favor the agent over the principal (or their estate) are deemed fraudulent, unless the agent is able to disprove the fraud with clear and convincing evidence that his or her actions were undertaken in good faith and did not betray the confidence and trust placed in the agent. If the agent can meet this burden, the challenged transaction may be upheld. But if it does not, then the transaction is not valid.

Some of the facts the court look at when making this determination are: did the fiduciary make a full disclosure to the principal of key information, did the fiduciary pay the fair market value for the transfer and did the principal have competent and independent advice.

In this case, the trial judge found that the multiple transfers into the Illinois banks and the gift of $130,000 from the principal to the oldest brother occurred during the existence of the POA relationship. The oldest brother clearly benefitted from these transfers, which activated the presumption of fraud.

The trial court’s decision was appealed by the older brother, who along with his two younger brothers brought motions for summary judgment, that is, for the appeals court to disregard the decision of the trial court. However, the appeals court agreed with the trial judge that the older brother failed to prove that the transfers were in good faith.

The appeals court makes it clear: the power of attorney fiduciary relationship begins when the power of attorney agent signs the document and the agent has a legal responsibility to put the interests of the principal first.

Reference: Chicago Daily Law Bulletin (April 23, 2020) “Presumed power of attorney fraud is main factor in joint-account fight”

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Financial Scams Targeting Seniors: How To Protect Yourself – Annapolis and Towson Estate Planning

It’s scary to think about. A time in life when people have the most assets under their care, is also the time that aging begins to take its toll on their bodies and their cognitive abilities. The legions of individuals actively preying on seniors to take advantage of them seems to be growing exponentially. What can you do?

Marketplace offers tips on how to best protect yourself and loved ones from scammers in its article “Concerned about financial scams? Here’s your guide.”

Stay in touch with family members, especially if they have lost loved ones to death or divorce. Isolation makes seniors vulnerable to scammers.

Try not to be judgmental and be empathetic if someone reveals that they have been scammed. Seniors who have been scammed are embarrassed and fearful.

Talk about the scams that you have heard about with loved ones. They may not know about the scams, and this may give them better awareness when the call comes.

If anyone in the family calls with an urgent request for money—often about a grandchild who is in trouble overseas or a fee for a prize that needs to be claimed immediately—pause and tell them that you need time to consider it.

Don’t send or wire money to anyone you don’t know. Gift cards from retailers, Google Play, iTunes or Amazon gift cards are often used by scammers to set up fraudulent transactions.

Once one scammer has nailed down contact information for a victim, they are more likely to be contacted by other scammers. If a loved one is getting calls at all hours of the day, they may be on a list of scam prospects. Consider changing the number, even though that is a hassle. The same goes for email addresses.

You can prevent scams by talking with people you trust about your financial goals. Talk with an estate planning attorney about creating an advance medical directive and medical power of attorney, then do the same for finances. A power of attorney for your finances allow someone who you know and trust to make financial decisions for you, if you become incapacitated, by illness or injury.

There are different powers of attorney:

General: A designated person can control parts of your financial life. When you return to normal functioning, the power of attorney ends.

Durable: This power of attorney remains in effect, if you become incapacitated.

Springing: This power of attorney is triggered by a life event, like the onset of dementia, an accident or disease, makes you mentally diminished or incapacitated. Certain states do not permit this type of power of attorney, so check with your estate planning attorney.

Reference: Marketplace (May 16, 2019) “Concerned about financial scams? Here’s your guide”

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How are Financial Advisors Trying to Prevent Financial Exploitation? – Annapolis and Towson Estate Planning

The next time you see your financial adviser, you may be asked to provide a trusted point of contact, such as a relative or friend to call, if the adviser has a reasonable belief that you might be a victim of financial exploitation.

Kiplinger’s recent article, “New Rules Battle Financial Scams, Elder Abuse” says that your adviser could place a temporary hold on a suspicious disbursement request from you, so your money is protected until the concern is investigated. Once money leaves an account, it’s hard to get it back.

Changes include several new laws that protect seniors and their money. For older adults, financial exploitation is a growing problem. One in five older Americans are the victim of financial exploitation each year, resulting in the loss of $3 billion annually.

Mild cognitive impairment can result in older adults not seeing red flags for fraud, says Michael Pieciak, president of the North American Securities Administrators Association (NASAA), which represents state securities regulators. The ability to judge risk may be diminished. He noted that social isolation plays a part, with vulnerable seniors home during the day and apt to answer the phone when a fraudster calls.

Federal and state lawmakers, along with the financial services industry, have initiated new rules to help safeguard seniors and their assets. The idea is that financial institutions and professionals are on the front lines of spotting elder financial abuse. The changes are designed to protect seniors and to shield financial professionals from liability for reporting possible exploitation.

Congress passed the Senior Safe Act in 2018. This law protects financial services professionals from being sued over privacy and other violations for reporting suspected elder financial abuse to law enforcement, provided they’ve been trained. If a bank teller notices that a senior seems confused about withdrawing money or making puzzling transactions, the teller could tell a superior, who could contact authorities, if necessary.

Nineteen states have enacted some version of a NASAA model act that provides registered investment advisers and broker-dealers with guidance on telling a trusted point of contact and putting a temporary hold on a client’s account to investigate financial fraud.

Reference: Kiplinger (April 3, 2019) “New Rules Battle Financial Scams, Elder Abuse”

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