FINANCIAL POWER OF ATTORNEY
If you become incapacitated, who will be deputized with giving directions? For individual accounts, this responsibility often falls to the agent named under your durable power of attorney.
Some provisions to consider:
Gifts. Does the document authorize the agent to make gifts? If you are not supporting other family members and do not face an estate tax, is such a provision warranted? Too often the gift provision is boilerplated and has little relevance to your circumstances.
Investments. Many power of attorney documents do not make mention of investments beyond a general authorization to conduct banking or securities transactions. If you have existing holdings or unique investments, will the general investment directions permit those to be continued?
Many Agents try to continue whatever investment plan you might already have been pursuing. But unless the power of attorney document permits such a path, the agent might be held to the standards of a prudent investor with appropriate diversification.
WILLS AND REVOCABLE TRUSTS
A will – or in many instances a “pour-over will” that pours assets into a trust created during your lifetime – provides for the disposition of assets upon your death. In many instances, the bequests are made into trust for various beneficiaries.
Standards. What investment standard does the document require? You should review these provisions ahead of time, as the document may hold some odd standards that might conflict with the investment policy pursued by you, or that might be inappropriate for an heir. Does the investment provision permit the present plan?
If a beneficiary has a particular need, be certain that the investment provisions permit it to be addressed. Too often, lawyers draft these provisions relying on standard clauses, without know what investment approaches you actually wants.
Taxes. Consider the tax consequences of any trusts created upon your death. Which states might tax them? Is there sufficient flexibility to change trustees or take other steps to diminish or avoid state taxes?
Strategies. A common estate planning strategy upon the death of a spouse is to fund a bypass or credit shelter trust. The remaining assets would pass to a trust qualifying for the estate tax marital deduction.
It is common for individuals to create irrevocable trusts that are taxed to the client for income tax purposes (grantor trust).
Perhaps most of these should include a swap power so that you, the grantor can return appreciated assets to the estate in exchange for cash. That maintains the same estate tax benefits but facilitates bringing appreciated assets into your estate to provide for an increase in income tax basis upon your death.
If this power is missing, it is suggested that you review with the attorney whether it can be added through a decanting (that is, a merger) of the trust. Without a swap power, maximization of the net of income tax returns for the family can be hindered.
Many irrevocable trust will include an annual demand, or Crummey power. This provision has the trustee give notice to the beneficiaries when gifts are made to the trust, so that they can qualify for the annual gift exclusion.
Even if you will not face an estate tax, it is necessary to meet these criteria to avoid having to file a gift tax return.
LLCs AND MORE
It’s common for individuals to hold investment assets in LLCs and family limited partnerships (FLP). Such entities can provide management, control, asset protection and other benefits.
While most, if not all, trusts include some type of investment provisions, typical LLC and FLP forms may not.
But many LLCs don’t have a manager. Instead, decisions are made by the members.
“ALL PROGESS TAKES PLACE OUTSIDE
THE COMFORT ZONE.”
-MICHAL JOHN BOBAK-