Can I Revoke a Power of Attorney?

I wanted to cover something of a follow-up to last week’s blog entry entitled Why Won’t My Power of Attorney Work which you can find here: https://galligan-law.com/why-wont-my-power-of-attorney-work/.  In that article I talked about limitations to powers of attorney and scenarios when they won’t work or at least not well.  In this article, I want to briefly address how to revoke a power of attorney.  The recent article from nwi.com entitled  “Estate Planning: Revoking a power of attorney” also addresses this topic.

A Power of Attorney (POA) is a document that allows another person to act on your behalf. The person designated is referred to as the “Attorney in Fact” or the “Agent.”  However, sometimes a family faces difficulty because the choice of agent no longer makes sense, or perhaps was only needed for a brief time.  Even worse, the family may determine the agent is a bad actor whose authority needs to end.

If the creator of the POA wants to revoke it, they have to do so in writing.  They should also identify the person who is to be revoked as the POA and must be signed by the person who is revoking the POA.

Here’s the tricky part: the agent has to know it’s been revoked.  Unless the agent has actual knowledge of the revocation, they may continue to use the POA and financial institutions may continue to accept it.  If you are revoking a power of attorney because the agent isn’t suitable or a bad actor, you have a problem.  You can’t slip off to your estate planning lawyer’s office, revoke the POA and hope the person will never know.

Another way to revoke a POA, and this is the preferred method, is to execute a new one. In most states, most durable POAs include a provision that the new POA revokes any prior POAs. By executing a new POA that revokes the prior ones, you have a valid revocation that is in writing and signed by the principal.

If you already had an acting agent and you created the new POA, send them a copy and retain proof that you did so to demonstrate they were aware of the new POA and new appointment.

If the POA has been recorded for any reason such as use in a real estate transaction, the revocation should reference that fact and should be recorded just as a new POA would be filed to replace the old one. If the POA has been provided to any individuals or financial institutions, such as banks, life insurance companies, financial advisors, etc., they will need to be properly notified that it has been revoked or replaced.

Two cautions: not telling the bad and having her find out after the principal has passed or is incapacitated might be a painful blow, with no resolution. Telling the person during lifetime and before there are issues is a good idea. A diplomatic approach is best: the principal wishes to adjust her estate plan and the attorney made some recommendations, this revocation among them, should suffice.

Talk with your estate planning lawyer to ensure that the POA is changed properly, and that all POAs have been updated.

Reference: nwi.com (March 7, 2021) “Estate Planning: Revoking a power of attorney”

Continue ReadingCan I Revoke a Power of Attorney?

Does Your State Have an Estate or Inheritance Tax?

There is a lot of focus recently on the federal estate and gift tax and the potential for changes due, and rightly so.  The tax rate is 40% of amounts gifted and left at your death above the exemption amount, which is likely to go down.  But, what a lot of people don’t consider is that some states have their own estate taxes, and in a few cases, inheritance tax.  Texas has neither, but I thought a blog on state estate and inheritance taxes would be a good follow-up to my recent blog on issues to consider when moving to a new state.  See that here:  https://galligan-law.com/should-you-update-your-estate-plan-if-you-move-to-a-new-state/

Although it has fallen out of favor recently, many states still have either an estate tax, inheritance tax or some combination.  According to The Tax Foundation’s recent article entitled “Does Your State Have an Estate or Inheritance Tax?”  17 states and the District of Columbia all apply some or both of these taxes.  Hawaii and the State of Washington have the highest estate tax rates in the nation at 20%, and there are 8 states and DC that are next that apply a top rate of 16%. Massachusetts and Oregon have the lowest exemption levels at $1 million, and Connecticut has the highest exemption level at $7.1 million.    For the New York readers, the estate tax exemption is at nearly $6 million and applies rates from about 3% up to 16% depending on how far you exceed the exemption.

6 states have inheritance taxes.  Inheritance taxes, unlike estate taxes, apply a tax rate based relationship of the decedent to the beneficiary, meaning it applies even if the estate is relatively small.  Nebraska has the highest top rate at 18%, and Maryland has the lowest top rate at 10%. All 6 of these states exempt spouses, and some fully or partially exempt immediate relatives.  For you Pennsylvania readers, this could be anywhere from 0% to spouse and 15% to individuals who aren’t close family members.

Estate taxes are paid by the decedent’s estate, prior to asset distribution to the heirs. The tax is imposed on the overall value of the estate less the exemption applicable to that state. Inheritance taxes may be due from either the estate or the recipient of a bequest and are based on the amount distributed to each beneficiary.

As I mentioned earlier, most states have been steering away from estate or inheritance taxes or have upped their exemption levels because estate taxes without the federal exemption hurt a state’s competitiveness. Delaware repealed its estate tax at the start of 2018, and New Jersey finished its phase out of its estate tax at the same time, though it still applies its inheritance tax.

Connecticut still is phasing in an increase to its estate exemption. They plan to mirror the federal exemption by 2023. However, as the exemption increases, the minimum tax rate also increases. In 2020, rates started at 10%, while the lowest rate in 2021 is 10.8%. Connecticut’s estate tax will have a flat rate of 12% by 2023.

In Vermont, they’re still phasing in an estate exemption increase. They are upping the exemption to $5 million on January 1, compared to $4.5 million in 2020.

DC has gone in the opposite direction. The District has dropped its estate tax exemption from $5.8 million to $4 million in 2021, but at the same time decreased its bottom rate from 12% to 11.2%.

So, it is of course a good idea to consider reviewing your estate plan when relocating, but especially if you move to states that have estate or inheritance tax.  Talk to an experienced estate planning attorney about how estate and inheritance taxes affect you in your new state.

Reference: The Tax Foundation (Feb. 24, 2021) “Does Your State Have an Estate or Inheritance Tax?”

Continue ReadingDoes Your State Have an Estate or Inheritance Tax?

Protect Assets from Medicaid Recovery

Medicaid is a government program used by Americans to pay long-term care, typically for nursing homes or in-home care.   What some people don’t realize is that Medicaid seeks reimbursement for money spent on someone’s behalf after they pass away.  The Medicaid Estate Recovery Program (MERP) is used to recoup costs paid toward long term care, so that the program can be more affordable for the government, says the article “What is Medicaid Estate Recovery?” from kake.com. Beneficiaries of Medicaid recipients are often surprised to learn that this impacts them directly, and are even more surprised that you can protect assets from Medicaid recovery with some planning.

Medicare was created to help pay for healthcare costs of Americans once they reach age 65. It covers many different aspects of healthcare expenses, but not costs for long-term or nursing home care. That is the role of Medicaid.

Medicaid helps pay the costs of long-term care for aging seniors. It is used when a person has not purchased long-term health care insurance or does not have enough money to pay for long-term care out of their own funds.  Medicaid is sometimes used by individuals who have taken steps to protect their assets in advance by using trusts or other estate planning tools.

The Medicaid Estate Recovery program allows Medicaid to be reimbursed for costs that include the costs of staying in a nursing home or other long-term care facility, home and community-based services, medical services received through a hospital when the person is a long-term care patient and prescription drug services for long-term care recipients.

When the recipient passes away, Medicaid is allowed to pursue assets from the estate. In fact, Federal law requires the states to have such a program.  Now, this is critical to recognize, but the scope of Medicaid varies widely between what state provided the benefits.  For the most part it means any assets that would be subject to the probate process after the recipient passes. That may include bank accounts, real estate, vehicles, or other real property.  Texas Medicaid recovery is happily limited to the estate.  So, there are many options to protect assets from Medicaid recovery in Texas.

In some states, recovery may be made from assets that are not subject to probate: jointly owned bank accounts between spouses, payable on death bank accounts, real estate owned in joint tenancy with right of survivorship, living trusts and any assets a Medicaid recipient has an interest in.

An estate planning attorney will know what assets Medicaid can use for recovery and how to protect the family from being financially devastated.

While it is true that Medicaid can’t take your home or assets before the recipient passes, it is legal for Medicaid to have a claim to assets before the beneficiaries, similar to the way other creditors of a decedent must be satisfied before beneficiaries receive property.  Let’s say your mother needs to move into a nursing home. If she dies, you’ll have to satisfy Medicaid’s claim before you can take possession or will pay the claim as part of a sale.

Strategic planning can be done in advance by the individual who may need Medicaid in the future. One way to do this is to purchase long-term care insurance, which is the strategy of personal responsibility. Another is removing assets from the probate process. Married couples can make that sure all assets are owned jointly with right of survivorship, or to purchase an annuity that transfers to the surviving spouse, when the other spouse passes away.

In most cases we can advance clients on how to change the the titling of their accounts to protect assets from Medicaid recovery before the person passes away.  We may also be able to create a Medicaid Asset Protection Trust, which may remove assets from being counted for eligibility.

As a final point, clients often encounter the medicaid claim in the estate, which is the first time an attorney is involved in the process.  Now, you may not have the same options to protect assets from Medicaid recovery because you’ll have lost prospective planning, but their are exceptions to recovery and ways to defend against the claim.  They are all very time sensitive however, so you should reach out to an attorney immediately upon encountering them.

Speak with an estate planning attorney to learn how to prepare for yourself or your parent’s future needs. The earlier the planning begins, the better chances of successfully protecting the family.

Reference: kake.com (Feb. 6, 2021) “What is Medicaid Estate Recovery?”

Continue ReadingProtect Assets from Medicaid Recovery