Planning for Future Health Issues with Living Wills and Powers of Attorney

Most people don't want to think about getting sick. Unfortunately, not thinking about it doesn't make it any less likely to happen. Having a plan in place ahead of time can greatly reduce the stress on you and your loved ones if the worst does happen. To cover these issues, a good estate plan should at least include the following:

Medical Power of Attorney (MPOA).  Sometimes the terms "living will" or "healthcare proxy" are also interchangeably used for this document. At a minimum, an MPOA specifies a "healthcare representative" who will make healthcare decisions for you when you're not able to, and allows medical facilities to release information to that person so that he or she can make informed decisions.

After passage of the HIPAA Act in the 1990s, this document became even more important. Because HIPAA increased the penalties on healthcare providers for releasing a person's personal healthcare information without prior authorization, hospitals and doctors have become very skittish about releasing healthcare information to anyone other than the patient. It is therefore very important that your MPOA is specifically drafted with HIPAA language allowing the release of your healthcare information to your healthcare representative.

This document also can prevent large amounts of family strife. The MPOA designates which of your family members has the ultimate say over end of life and other healthcare decisions. This can prevent unfortunate emotional fights among family members during a difficult time.

Lastly, an MPOA can provide instructions to your healthcare representative. These instructions can designate when life saving measures should be removed. They can also provide guidance about donation of tissue and organs or any other medical issue you can imagine. Specific instructions aren't necessary if you'd rather your chosen healthcare representative have discretion over healthcare decisions.

General Durable Power of Attorney (POA).  Just as an MPOA appoints a representative for you over your healthcare matters, a POA appoints a representative over your legal and financial matters. A POA can be set up to take effect immediately upon signing, or can instead be set up to "spring" into effect only after you are no longer able to handle your own affairs. The person appointed under your POA is authorized to sign checks, pay bills, and handle most other legal and financial matters. Many times the powers in the POA allow your loved ones to not have to go to court to be appointed your guardian when you are unable to take care of yourself. On the other hand, in the unfotunate event that you do end up needing a court-appointed guardian, you can specify in your POA ahead of time who you would like that guardian to be. This can prevent family conflicts down the road.

Planning for Long Term Care. The best long term care planning is buying long term care insurance while middle aged (or younger). This reduces or eliminates the possibility that all of your assets will be lost to Medicaid or a nursing home in your later years. On the other hand, if you're no longer young enough to purchase long term care insurance, there may still be some options that we can discuss.

Hopefully this has been an informative introduction to planning for future health issues. If you have any questions about planning for future health issues, or would like more details, feel free to contact me.

TAX ADVICE DISCLAIMER: Any tax advice contained in this communication (including attachments) was not intended or written to be used, and it cannot be used, by you for the purpose of (1) avoiding any penalty that may be imposed by the Internal Revenue Service or (2) promoting, marketing, or recommending to another party any transaction or matter addressed herein.

NOT LEGAL ADVICE. Everything posted here is for educational purposes only, and is not to be construed as legal advice. Do not take any action, postpone any action, or decline to take any proposed action based on this information without first engaging the representation of me or another qualified attorney. Nothing posted on Twitter or on any website shall be construed in any way as legal advice.

DISCLAIMER: I am an attorney and a CPA, however I am neither your attorney nor your CPA, and therefore no communications between us are covered by attorney-client or accountant-client privilege unless you possess a signed document which states that I currently represent you as an attorney or a CPA. In the case that such a document exists, the existence or waiver of attorney-client privilege or accountant-client privilege shall be controlled by the signed fee agreement or engagement letter.

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Keeping It Simple in Asset Protection or Estate Planning

In my last post, I talked about how too much planning to protect your assets can go badly.  That post was in the context of trying to make too many transfers and getting burned under UFTA.  In this post, I'd like to show another example of "too much" or overly complex planning.

In Leeds LP v. US, 807 F.Supp. 946 (S.D.Cal. 2011), the debtors in question had large federal tax debts.  Under federal law, the IRS can file liens against  all of the debtor's property in such a situation.  In order to avoid having IRS liens attach to their many real estate investments, the debtors engaged in a series of "sales" of property into various entities in exchange for mortgages.  In a series of complex transactions, some of the entities foreclosed on the mortgages given by other entities, and the properties were sold at foreclosure sales in order to further shift properties away from the debtors.  There are so many entities, mortgages, and foreclosures in the opinion that it's hard to keep track of exactly what happened while reading it.  

The bottom line, however, is that the sheer volume of transactions (none of which had any real financial substance) only served to demonstrate that the debtors clearly had bad intent when engaging in these transactions.  It is hard to argue that it would have been commercially reasonable to engage in the volume and complexity of transactions in which the entities participated without a substantial profit motive.  The court shot down the debtor's actions and held the entities to be no more than nominees of the debtors.  It also didn't help that the debtors didn't follow through on many formalities of the transactions.  [For example, one of the deeds in question remained unrecorded for two years.]

Leeds teaches an important lesson in all of the planning we do.  Many times the KISS (Keep It Simple Stupid) method can be the most effective, as it opens up the least arguments that the planner has any nefarious intent.  Although Leeds was a case involving a debtor seeking to protect its own assets while alive, the same theory often applies in more traditional estate planning where lifetime aset protection isn't a major goal.  In such estate plans, our major goals are usually two: protecting beneficiaries from divorce and/or other debts, and minimizing taxes.  When we set up testamentary trusts to protect children's inheritances, excessively complex provisions designed to give too much control to beneficiaries can sometimes reduce the efficacy of the protection.  When we are seeking to minimize federal or New Jersey Estate Tax, some of the more "cute" strategies serve only to draw more scrutiny as to their real economic substance from the IRS or New Jersey Division of Taxation.

Keeping it simple serves the additional benefit of making the necessary formalities easier to follow.  Failure to follow formalities is one of the things that tripped up the debtors in Leeds and can trip up any asset protection or estate plan.

If you're interested in any asset protection topics, or in planning your estate to minimize taxes and protect your children, feel free to contact me.

TAX ADVICE DISCLAIMER: Any tax advice contained in this communication (including attachments) was not intended or written to be used, and it cannot be used, by you for the purpose of (1) avoiding any penalty that may be imposed by the Internal Revenue Service or (2) promoting, marketing, or recommending to another party any transaction or matter addressed herein.

NOT LEGAL ADVICE. Everything posted here is for educational purposes only, and is not to be construed as legal advice. Do not take any action, postpone any action, or decline to take any proposed action based on this information without first engaging the representation of me or another qualified attorney. Nothing posted on Twitter or on any website shall be construed in any way as legal advice.

DISCLAIMER: I am an attorney and a CPA, however I am neither your attorney nor your CPA, and therefore no communications between us are covered by attorney-client or accountant-client privilege unless you possess a signed document which states that I currently represent you as an attorney or a CPA. In the case that such a document exists, the existence or waiver of attorney-client privilege or accountant-client privilege shall be controlled by the signed fee agreement or engagement letter.