Guardianships and Powers of Attorney: What’s the Difference?

The terms “guardianship” and “power of attorney” are mostly heard when dealing with a family member or loved one who’s incapacitated. But what’s the difference between the two? Are they the same thing? Who needs a guardianship and who needs a power of attorney? When should I get a power of attorney vs a guardianship?

A guardianship is a legal process that gives one person the ability to make decisions for another person. These can be obtained for either an incapacitated adult or a minor child. A Power of Attorney is also a legal tool that gives one person (the agent) the ability to make decisions for another person (the principal). It is a legal document that is usually drafted by an attorney. Historically, a power of attorney became ineffective when the principal became incapacitated. However, most individuals who use powers of attorney for estate planning purposes opt for a “durable” power of attorney. A durable power of attorney remains effective even after the principal has become incapacitated. A person becomes incapacitated when they are unable to make their own financial and healthcare decisions.

So what’s the difference?

A Guardianship can be established when an individual is no longer able to make their own business and financial decisions. Guardianships in Alabama can only be obtained through the court system, and a judge decides who the guardian will be. Generally, a guardianship is used when there are no less restrictive means to make decisions on behalf of an individual.

A Power of Attorney, on the other hand, is created while an individual still has the ability to make his or her own business and financial decisions. The principal can decide who will be his or her agent, when the power of attorney will become effective, and what matters his or her agent can address on their behalf. The principal must, however, have a sound mind when executing this document. If you become incapacitated before you’ve had a chance to have a power of attorney drafted and you happen to need certain business and/or financial decisions made on your behalf, then someone will have to be appointed as a guardian by a court.

The main difference between the guardianship and a power of attorney is that a guardianship takes away the right of the individual to make decisions, while a power of attorney permits another to make decisions in conjunction with the individuals’ choices. There are times when it is necessary to remove the right to make poor decisions.

If I have a power of attorney will I still have to have a guardian appointed for me?

The answer depends on whether the Power of Attorney document is sufficient to meet all the needs of the incapacitated person. You might need a guardianship when a Power of Attorney is limited or not sufficient and doesn’t address certain matters that can be handled on behalf of a principal. In this case, you would need a Guardianship over the person in order to make decisions for them.

Another reason you might need a guardianship is when you have a Power of Attorney, and you need to protect an incapacitated person from being taken advantage of. A Power of Attorney allows another individual to make decisions on behalf of another person jointly. A guardianship goes one step further and takes away an incapacitated person’s rights to make individual decisions on their own.

Contact the Law Office of Rodney Davis, PLLC at (205) 578-1597 to speak with a lawyer who handles guardianships and powers of attorney. Our office can help you determine whether your Power of Attorney document is sufficient and whether you might also need a Guardianship.

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More Real Estate Investment Opportunities Coming to Birmingham Area

Birmingham Initiative Seeks to Provide New Opportunities for Real Estate Investors In Opportunity Zones

The Tax Cuts and Jobs Act, signed into law by President Trump in December 2017, created Opportunity Zones to spur investment in distressed communities and in rural low income and urban areas throughout the country. New investments in Opportunity Zones can receive preferential tax treatment. The opportunity zones are delineated by local government officials and approved by the Treasury Department.

Pursuant to the Act, 24 opportunity zones were nominated in the Birmingham area by Governor Kay Ivey and certified by the Department of Treasury in 2018. These 24 opportunity zones cover 77 of Birmingham’s 99 neighborhoods. According to a recent article in the Birmingham Times, Birmingham Mayor Randall Woodfin recently announced the creation of the BIG Partnership, a new initiative that seeks to further advance and incentivize investment in the communities within Birmingham’s opportunity zones. The recent article on the announcement can be found here.

Among the many projects to be provided by the new initiative will be an educational campaign that will educate local residents on the opportunity zones.

To learn more about Birmingham’s opportunity zones and how we can help you get started in real estate investment, contact us today.

Thanksgiving and Estate Planning

Thanksgiving is one of America’s most beloved holidays–the cranberry sauce, the turkey, the pies, the rare reunion with family members you love and miss. One of the things that makes Thanksgiving so enjoyable is the planning. Thanksgiving gatherings generally don’t come together on their own. It takes family members deciding in advance who will roast the turkey, who will prepare the desserts, who will bring the beverages, etc.

Thanksgiving is just one example of how important it is to plan ahead in order to ensure success. Estate planning is no different. Planning your estate is important to make sure your assets are handled the way you would want them to be handled in any situation.

Coincidentally, Thanksgiving dinner provides a perfect opportunity for families to discuss their estate planning goals while everyone is together under the same roof. Many adults unfortunately delay having a conversation about estate planning with their families for many reasons. However, there are many benefits of having a conversation on estate planning with your family during holidays such as Thanksgiving.

Having the conversation provides an opportunity to form an understanding between you and your family on your goals and wishes for your assets and affairs. It also helps to reduce any confusion that there may be between you and your family, which may reduce the chances of disputes forming later down the road. Decisions don’t necessarily have to be made in the meeting. Sometimes it enough to simply achieve an understanding between you and your family on certain matters.

Many business owners and wealthy families, for example, use major holidays such as Thanksgiving to discuss business and philanthropy.  If there’s a family business, family members may want to use that meeting to update the rest of the family on business performance or the succession plan for that business.

Having a conversation on estate planning during the Thanksgiving holiday is a great start to ensure a successful estate plan. That conversation should, however, transition to the office of a trusted adviser who can answer any questions or concerns you may have about your estate, as well as assist you with preparing a secure estate plan.

Contact our office today to discuss your estate planning goals. 

What to Do With an Inherited IRA

What to Do With an Inherited IRA

Inheriting an IRA may seem like a good thing, but there can be tax consequences if you aren’t careful. If you inherit an IRA, you should check with an attorney or financial advisor as soon as possible to find out your options.

IRAs are personal savings plans that allow you to set aside money for retirement and get a tax deduction for doing so. Earnings in a traditional IRA generally are not taxed until distributed to you. At age 70 1/2 you have to start taking distributions from a traditional IRA. Earnings in a Roth IRA are not taxed, nor do you have to start taking distributions at any point, but contributions to a Roth IRA are not tax deductible. Any amount remaining in an IRA upon death can be paid to a beneficiary or beneficiaries.

Spouse as beneficiary

If you inherit your spouse’s IRA, you can treat the IRA as your own. You can either put the IRA in your name or roll it over into a new IRA. The Internal Revenue Service will treat the IRA as if you have always owned it. If you are not yet 70 ½ years old, you can wait until you reach that age to begin taking minimum withdrawals. If you are over 70 ½ and were 10 or more years younger than your spouse, you can use a longer joint-life expectancy table to calculate withdrawals, which means lower minimum withdrawal amounts. If you inherit a Roth IRA, you do not need to take any distributions.

You can leave the account in your spouse’s name, but in that case you will need to begin taking withdrawals when your spouse would have turned 70 ½ or, if your spouse was already 70 ½, then a year after his or her death. If you want to drain the account, you can use the “five-year rule.” This allows you to do whatever you want with the account, but you must completely empty the account (and pay the taxes) by the end of the fifth year after your spouse’s death.

Non-spouse as beneficiary

The rules for a child or grandchild (or other non-spouse) who inherits an IRA are somewhat different than those for a spouse. You can choose to take distributions over your lifetime and to pass what is left onto future generations (called the “stretch” option). The required minimum distributions will be calculated based on your life expectancy. This allows the money to grow tax-deferred over the course of your life and to be passed on to your beneficiaries, if you wish. If you want to do this, you must retitle the IRA into an inherited IRA and take your first distribution by December 31 of the calendar year following the year the decedent died.

If you choose not to stretch the IRA, you will have to withdraw it all within five years of the original IRA owner’s death. This can lead to a large tax bill–unless the IRA is a Roth, in which case the distributions are tax-free.

Trust as beneficiary

If the IRA names a trust as the beneficiary, the trust may not be able to take advantage of the opportunity to stretch withdrawals across decades. Stretching an IRA may still be an option, however, if the trust is considered a “see-through” or conduit trust. If you have inherited an IRA in a trust, contact your attorney to find out your options.

Estate tax

If the decedent’s estate was subject to an estate tax, the IRA beneficiary may be able to get an income tax deduction for the estate taxes paid on the IRA.

For information on how to include an IRA in your estate plan, click here.

Be Careful About Putting Only One Spouse’s Name on a Reverse Mortgage

Be Careful About Putting Only One Spouse’s Name on a Reverse Mortgage

A recent case involving basketball star Caldwell Jones demonstrates the danger in having only one spouse’s name on a reverse mortgage. A federal appeals court has ruled that an insurance company may foreclose on a reverse mortgage after the death of the borrower, Mr. Jones, even though Mr. Jones’ widow is still living in the house. While there are protections in place for non-borrowing spouses, many spouses are still facing foreclosure and eviction.

A reverse mortgage allows homeowners to use the equity in their home to take out a loan, but borrowers must be 62 years or older to qualify for this type of mortgage. If one spouse is under age 62, the younger spouse has to be left off the loan in order for the couple to qualify for a reverse mortgage. Some lenders have actually encouraged couples to put only the older spouse on the mortgage because the couple could borrow more money that way. But couples often did this without realizing the potentially catastrophic implications. If only one spouse’s name was on the mortgage and that spouse died, the surviving spouse would be required to either repay the loan in full or face eviction.

In order to protect non-borrowing spouses, the federal government revised its guidelines for reverse mortgages taken out after August 4, 2014 to allow spouses to stay in the house as long as they meet certain criteria, including proving ownership within 90 days of the borrowers death. In 2015, the federal government allowed lenders to defer foreclosure on a widow or widower and assign the mortgage to the federal government. Advocacy groups looking at reverse mortgage foreclosures have found that despite these new regulations, lenders are still foreclosing on non-borrowing spouses. Of the 591 non-borrowing spouses who have sought help to avoid foreclosure, only 317 received assistance.

These regulations did not help Mr. Jones’ wife, Vanessa. Mr. Jones, who blocked more than 2,200 shots during his 17-year professional basketball career, obtained a reverse mortgage in 2014 on the Georgia home he lived in with his wife. The contract defined the “borrower” to be “Caldwell Jones, Jr., a married man.” Ms. Jones did not put her name on the reverse mortgage because she was under age 62 at the time of the mortgage. Mr. Jones died later that year, and when Ms. Jones did not repay the loan, the insurer began foreclosure proceedings.

Ms. Jones sued the insurer in federal court to prevent the foreclosure, arguing that federal law prohibited the insurer from foreclosing on the house while she lived in it. Under a provision in federal law, the federal government “may not insure” a reverse mortgage unless the “homeowner” does not have to repay the loan until the homeowner either dies or sells the mortgaged property and defines “homeowner” to include the borrower’s spouse.

On appeal, the 11th Circuit Court of Appeals (Estate of Caldwell Jones, Jr. v. Live Well Financial (U.S. Ct. App., 11th Cir., No. 17-14677, Sept. 5, 2018)) ruled that the federal law in question only covers what the federal government can insure and does not govern the insurer’s right to foreclose. The court agrees with Ms. Jones that the law is intended to safeguard widows and implies that the federal government should not have insured the loan in the first place, but finds that federal law does not cover the insurer’s private right to demand immediate payment and pursue foreclosure.

When purchasing a reverse mortgage, it is always safer to put both spouse’s names on the mortgage. If one spouse is underage when the mortgage is originally taken out, that spouse can be added to the mortgage when he or she reaches age 65. If you have a reverse mortgage with only one spouse on it, contact an elder law attorney to find out the best way to protect the non-borrowing spouse. 

Four Steps to Take Right After an Alzheimer’s Diagnosis

If you or a loved one has been diagnosed with Alzheimer’s disease, it is important to start planning immediately. There are several essential documents to help you once you become incapacitated, but if you don’t already have them in place, you need to act quickly after a diagnosis.

Having dementia does not mean an individual is not mentally competent to make planning decisions. The person signing documents must have “testamentary capacity,” which means he or she must understand the implications of what is being signed. Simply having a form of mental illness or disease does not mean that you automatically lack the required mental capacity. As long as you have periods of lucidity, you may still be competent to sign planning documents.

The following are some essential documents for someone diagnosed with dementia:

  • Power of Attorney. A power of attorney is the most important estate planning document for someone who has been diagnosed with Alzheimer’s disease or some other form of dementia. A power of attorney allows you to appoint someone to make decisions on your behalf once you become incapacitated. Without a power of attorney, your family would be unable to pay your bills or manage your household without going to court and getting a guardianship, which can be a time-consuming and expensive process.
  • Health Care Proxy. A health care proxy, like a power of attorney, allows you to appoint someone else to act as your agent for medical decisions. It will ensure that your medical treatment instructions are carried out. In general, a health care proxy takes effect only when you require medical treatment and a physician determines that you are unable to communicate your wishes concerning treatment.
  • Advanced Directive for Health Care or Living Will. Advanced directives and living wills explain what type of care you would like if you are unable to direct your own care. An advance directive can include a health care proxy or it can be a separate document. It may contain directions to refuse or remove life support in the event you are in a coma or a vegetative state or it may provide instructions to use all efforts to keep you alive, no matter what the circumstances.
  • Will and Other Estate Planning Documents. In addition to making sure you have people to act for you and your wishes are clear, you should make sure your estate plan is up to date, or if you don’t have an estate plan, you should draw one up.  Your estate plan directs who will receive your property when you die. Once you are deemed incapacitated, you will no longer be able to create an estate plan. An estate plan usually consists of a will, and often a trust as well. Your will is your legally binding statement on who will receive your property when you die, while a trust is a mechanism for passing on your property outside of probate.

In addition to executing these documents, it is also important to create a plan for long-term care. Long-term care is expensive and draining for family members. Developing a plan now for what type of care you would like and how to pay for it will help your family later on. Your attorney can assist you in developing that plan and drafting any necessary documents.

If you would like more information feel free to contact our office today.

How to Handle Sibling Disputes Over a Power of Attorney

A power of attorney is one of the most important estate planning documents, but when one sibling is named in a power of attorney, there is the potential for disputes with other siblings. No matter which side you are on, it is important to know your rights and limitations.

A power of attorney allows someone to appoint another person — an “attorney-in-fact” or “agent” — to act in place of him or her – the “principal” — if the principal ever becomes incapacitated. There are two types of powers of attorney: financial and medical. Financial powers of attorney usually include the right to open bank accounts, withdraw funds from bank accounts, trade stock, pay bills, and cash checks. They could also include the right to give gifts. Medical powers of attorney allow the agent to make health care decisions. In all of these tasks, the agent is required to act in the best interests of the principal. The power of attorney document explains the specific duties of the agent.

When a parent names only one child to be the agent under a power of attorney, it can cause bad feelings and distrust. If you are dealing with a sibling who has been named agent under a power of attorney or if you have been named agent under a power of attorney over your siblings, the following are some things to keep in mind:

  • Right to information. Your parent doesn’t have to tell you whom he or she chose as the agent. In addition, the agent under the power of attorney isn’t required to provide information about the parent to other family members.
  • Access to the parent. An agent under a financial power of attorney should not have the right to bar a sibling from seeing their parent. A medical power of attorney may give the agent the right to prevent access to a parent if the agent believes the visit would be detrimental to the parent’s health.
  • Revoking a power of attorney. As long as the parent is competent, he or she can revoke a power of attorney at any time for any reason. The parent should put the revocation in writing and inform the old agent.
  • Removing an agent under power of attorney. Once a parent is no longer competent, he or she cannot revoke the power of attorney. If the agent is acting improperly, family members can file a petition in court challenging the agent. If the court finds the agent is not acting in the principal’s best interest, the court can revoke the power of attorney and appoint a guardian.
  • The power of attorney ends at death.If the principal under the power of attorney dies, the agent no longer has any power over the principal’s estate. The court will need to appoint an executor or personal representative to manage the decedent’s property.

If you are drafting a power of attorney document and want to avoid the potential for conflicts, there are some options. You can name co-agents in the document. You need to be careful how this is worded or it could cause more problems. The best way to name two co-agents is to let the agents act separately. Another option is to steer clear of family members and name a professional fiduciary.

Sibling disputes over how to provide care or where a parent will live can escalate into a guardianship battle that can cost the family thousands of dollars. Drafting a formal sibling agreement (also called a family care agreement) is a way to give guidance to the agent under the power of attorney and provide for consequences if the agreement isn’t followed. Even if you don’t draft a formal agreement, openly talking about the areas of potential disagreement can help. If necessary, a mediator can help families come to an agreement on care.

If you would like to learn more about powers of attorney and how you can benefit from having one, please give us a call today!

Estate Planning in the New Year

The New Year is all about a fresh start. Along with losing a few pounds and joining the gym, why not consider starting 2018 off with an estate plan that works for you and your family? This does not simply mean assessing whether or not you have estate planning in place. It also means ensuring the planning you do have is up to date and actually accomplishes your estate planning goals. Only about half of all Americans have planned for their disability and death. Of the fifty percent of people who have created estate plans most estate plans are only updated every 20 or so years. We believe your best practice is to review your estate planning every year and update your estate plan every 2-3 years so it remains consistent with changes in your life (personal and financial), changes in the law, changes in your attorney’s experience, and changes in your legacy. Make 2018 the year you adopt this philosophy as well!

In addition to reviewing your physical estate planning documents, the New Year is also a good time to assess what you own and determine if assets have been bought or sold which might impact your planning. Proper asset ownership is a critical piece to ensuring your estate planning works. Consider this relatively common scenario: you have a checking account, a savings account a retirement account and a house. All of the accounts and the house are owned jointly with your oldest child and your oldest child is the beneficiary of your retirement account. You also have a Last Will and Testament that says when you die everything you own is to be split equally between your three children. In this situation, when you do die, what do you think is going to happen? If you believe your oldest child gets everything and you have disinherited your other two children, you would be correct. Because your oldest child is the joint owner and beneficiary of all of your assets, she gets everything! This is true even though you have a Will that say something else and your intent is for all of your children to be equal beneficiaries of your estate. This is a perfect example of why reviewing what you own and how you own it is essential to the success of your estate planning.

Contact us today for more information on how you can start off the new year with a comprehensible estate plan.

Estate Planning Tips for Natural Disasters

Natural disasters can be extremely scary for all involved. Many people lose their lives and leave their families behind because they’re unable to get help during an emergency. It can also be scary for outsiders to watch as so many helpless people are injured or killed during a natural disaster. It’s important to have a plan in place, so that you and your family are protected, no matter what happens. Below are 10 estate planning tips to keep in mind in order for you and your family to be better prepared for a natural disaster.

  1. Keep a copy of your critical documents in a fireproof safe, safety deposit box, or in the cloud in a password-protected folder that can be accessed outside of the disaster zone.
  2. Create a password file so your representatives can access your 401k, IRA and investment accounts. It is almost impossible to get information on your investments and life insurance policies without the requisite paperwork and account information.
  3. Make sure your personal representatives and trustees have copies of your current wills, trusts, advance directives and powers of attorneys. We provide copies to give to clients so that they can email them to the right person.
  4. Keep your CPA or financial adviser up to date on your estate plan and who prepared it. Your representatives will need to contact the attorney who hopefully has copies of your executed documents in a safe and accessible place.
  5. Know where you homeowners insurance policy is and communicate with your agent on where back-up copies might be placed.
  6. Find your life insurance policies, scan them and get rid of the expired ones. Know how much insurance you have through your employer and who the beneficiaries are.
  7. Create an inventory of your assets and liabilities and update it once a year. Lost accounts and utility deposits happen frequently and ended up being turned over to the state when the owner cannot be found.
  8. Create an emergency number for family members to call that is a landline. Cell phones may not be operative. Keep hard copy list of the phone numbers of extended family members–not just in your cell phone.
  9. Don’t assume the courthouses will be in operation anytime soon. Many of the buildings are seismic-deficient and paper records may be destroyed.
  10. If you have sufficient assets, consider preparing a trust to avoid probate and name an out-of -state back-up trustee to administer your estate.

For more information on how you can better prepare yourself for a natural disaster contact us today.

Estate Planning Considerations When Sending Your Kid to College

Each year, hundreds of thousands of incoming freshman leave their parents’ nest and get their first taste of independent life as an adult. For most students, the experience is nothing short of a dream come true while for others weekend trips home may be the only way to keep their sanity. Regardless of how long it takes a new college student to get comfortable in his or her new way of life, one thing is certain- and it is something that many parents do not fully grasp: When a child moves away from home to begin this exciting chapter of life, he or she is not only leaving the comforts of home but also the protections that parents offer until the age of 18. By “comforts” and “protections” I mean much more than having someone who does your cooking or laundry. Under the law, when your child turns 18 he or she is an adult under the law,  which means that a parent’s right’s in controlling some affairs of that child become significantly diminished. Among these diminished rights are the (1) the right to make healthcare decisions on behalf of the child, and (2) the right to act on the child’s behalf in financial transactions.

In the event the child is hospitalized, medical personnel have no obligation to follow anyone’s wishes regarding treatment or consent except for the patient’s, and medical records are going to remain sealed from view absent a court order directing otherwise. In the event of a serious accident or illness that leaves the child unable to determine his or her own course of treatment or who can make those decisions on his or her behalf, a doctor’s hands are going to be tied, which will lead to a court’s intervention in order to make important decisions.

Further, institutions such as banks, utility providers or even landlords typically will not permit an individual that is not named on an account to access its funds or information. This means that if a child is in the hospital for an extended period of time unable to act on his own behalf, the financial repercussions of failing to do things such as pay bills in a timely fashion can be long-lasting in the form of bad credit and collections.

So how do parents prepare and plan for these unthinkable situations in which decisions regarding the child’s healthcare and financial transactions must be handled? The answer is PROPER ESTATE PLANNING. Below are a few documents that your college-bound child should not leave the nest without.

Advanced Directive for Health Care

 A living will is a directive that instructs family members and medical professionals on which end-of-life procedures you want done (for example,  instructions on when you want to be kept on or removed from life support). A medical power of attorney (also known as a health care power of attorney) is a legal document in which you are able to appoint someone to make decisions regarding your health care in the event that you become incapacitated. Advanced directives for healthcare are often useful to designate a medical power of attorney in conjunction with a living will to form this document in order to ensure that you will have someone advocating for the directives you have spelled out in writing. In addition to those directives spelled out in writing, an advanced directive for health care can also allow you to appoint someone to make decisions regarding your health care that isn’t spelled out in writing.

HIPPA Release Form

The Health Insurance Portability and Accountability Act of 1996 (HIPAA) is a federal law that sets rules for health care providers and health plans about who can look at and receive your health information, including family members and friends. You know those forms every health care provider makes us sign when we receive any type of medical care? The one that typically allows the doctor to release information to our health insurer? That is a HIPAA form.

A signed HIPAA authorization is like a permission slip. It permits healthcare providers to disclose your health information to anyone you specify. A stand-alone HIPAA authorization (not incorporated into a broader legal document) does not have to be notarized or witnessed. Young people who want parents to be involved in a medical emergency, but fear disclosure of sensitive information, need not worry; HIPAA authorization does not have to be all-encompassing. The young adults can stipulate not to disclose information about sex, drugs, mental health, or other details they might want to keep private.

A Durable Power of Attorney for Finances and Property

The durable power of attorney for finances and property functions the same as the durable power of attorney for healthcare; but it addresses powers related to non-medical actions such as those related to finances and property management and transactions. With a valid durable power of attorney for finances and property an agent should be able to access the principal’s bank accounts and financial records, pay rent, utilities and credit card bills, manage investments and loans and so on.

Important to note as well is the ability to structure the powers of attorney to limit the agent’s ability to take action until the principal is deemed incapacitated so the principal is the only party able to act on his behalf unless or until something happens.

To learn more about these estate planning tools please contact us today!