Friday, May 25, 2012

New DPOA requirements

Michigan has amended section 5501 of the Estates and Protected Individuals Code, governing durable powers of attorney. For any document executed after October 1, 2012, it must
  • be dated and either notarized or signed before two witnesses, and 
  • include an acknowledgement signed by the agent (the "attorney in fact")
The acknowledgement reads as follows: 
I, ____________________, have been appointed as attorney-in-fact for ________________________, the principal, under a durable power of attorney dated __________. By signing this document, I acknowledge that if and when I act as attorney-in-fact, all of the following apply:
(a) Except as provided in the durable power of attorney, I must act in accordance with the standards of care applicable to fiduciaries acting under durable powers of attorney.
(b) I must take reasonable steps to follow the instructions of the principal.
(c) Upon request of the principal, I must keep the principal informed of my actions. I must provide an accounting to the principal upon request of the principal, to a guardian or conservator appointed on behalf of the principal upon the request of that guardian or conservator, or pursuant to judicial order.
(d) I cannot make a gift from the principal's property, unless provided for in the durable power of attorney or by judicial order.
(e) Unless provided in the durable power of attorney or by judicial order, I, while acting as attorney-in-fact, shall not create an account or other asset in joint tenancy between the principal and me.
(f) I must maintain records of my transactions as attorney-in-fact, including receipts, disbursements, and investments.
(g) I may be liable for any damage or loss to the principal, and may be subject to any other available remedy, for breach of fiduciary duty owed to the principal. In the durable power of attorney, the principal may exonerate me of any liability to the principal for breach of fiduciary duty except for actions committed by me in bad faith or with reckless indifference. An exoneration clause is not enforceable if inserted as the result of my abuse of a fiduciary or confidential relationship to the principal.
(h) I may be subject to civil or criminal penalties if I violate my duties to the principal.
Signature: _______________________ Date: ______________________
In addition, a new subsection (3) provides limitations and imposes new duties on the agent:  
An attorney-in-fact designated and acting under a durable power of attorney has the authority, rights, responsibilities, and limitations as provided by law with respect to a durable power of attorney, including, but not limited to, all of the following:
(a) Except as provided in the durable power of attorney, the attorney-in-fact shall act in accordance with the standards of care applicable to fiduciaries exercising powers under a durable power of attorney.
(b) The attorney-in-fact shall take reasonable steps to follow the instructions of the principal.
(c) Upon request of the principal, the attorney-in-fact shall keep the principal informed of the attorney-in-fact's actions. The attorney-in-fact shall provide an accounting to the principal upon request of the principal, to a conservator or guardian appointed on behalf of the principal upon request of the guardian or conservator, or pursuant to judicial order.
(d) The attorney-in-fact shall not make a gift of all or any part of the principal's assets, unless provided for in the durable power of attorney or by judicial order.
(e) Unless provided in the durable power of attorney or by judicial order, the attorney-in-fact, while acting as attorney-in-fact, shall not create an account or other asset in joint tenancy between the principal and the attorney-in-fact.
(f) The attorney-in-fact shall maintain records of the attorney-in-fact's actions on behalf of the principal, including transactions, receipts, disbursements, and investments.
(g) The attorney-in-fact may be liable for any damage or loss to the principal, and may be subject to any other available remedy, for breach of fiduciary duty owed to the principal. In the durable power of attorney, the principal may exonerate the attorney-in-fact of any liability to the principal for breach of fiduciary duty except for actions committed by the attorney-in-fact in bad faith or with reckless indifference. An exoneration clause is not enforceable if inserted as the result of an abuse by the attorney-in-fact of a fiduciary or confidential relationship to the principal.
(h) The attorney-in-fact may receive reasonable compensation for the attorney-in-fact's services if provided for in the durable power of attorney.

Saturday, May 5, 2012

The Trustee In Training

On Monday, May 21, we will be presenting The Trustee in Training, subtitled "Lessons in Handling Other People's Money". This will provide information for people who are currently serving or who have been named to serve as personal representative of an estate (called the "executor" in most other states) or the trustee of a trust. Some of the information will also apply to persons who act as agent for another person under a Durable Power of Attorney or as a court-appointed conservator.

We will address some of the legal and financial requirements, including reporting, accounting, seeking professional assistance, and dealing with creditor's claims. Information on the Prudent Investor Rule and on the need for accounting for principal and interest will be included.

Date: Monday, May 21, 2012
Time: 6:30 pm
Location: Peter White Public Library, lower level

Free and open to the public.

Wednesday, May 2, 2012

Beware estate tax misinformation

We have seen this in a couple of different venues now, so it is not just a coincidence. Articles on the importance of estate planning in this election year, with its (revisited) uncertainty about the extension of or abolition of estate tax exemptions, are giving people misleading information.

Put simply, there is nothing that you can do in your personal planning documents now that will "lock in" the current $5 million exemption equivalent, so that you can guarantee that it will be available at that level in future years. All three of the major transfer taxes - estate tax, gift tax, and generation-skipping tax - determine their lifetime per-person exemption amounts as of the date of the decedent's death, not as of the date of the execution of planning documents.

(Yes, using life insurance and other financial vehicles outside of planning documents, you may be able to restructure your financial picture to approximate the same result. But that can be done at any time.)

Although gifts are taxed at the time of the gift, not at the date of death, it is the lifetime gift tax exemption that controls how much the decedent can transfer free of gift taxes, and the exemption amount that is in force at the time of his death controls. If Arnold makes a $4 million gift to his son Bert this year, it will not be taxed this year, because this year's exemption is $5.12 million, but if Congress later reduces the lifetime exemption to $3 million, only that amount of the gift will be free of tax. There is no doubt that opposition to any proposal to reduce the lifetime gift tax exemption amount below the current level will include stories of people who have already made substantial gift "in reliance on" the current levels. The experience of recent years, however, tells us that no one should put much reliance on stability in the transfer tax rules.

If you live past December 31 of this year, there is no way that you can use this year's exemption amount unless it is extended. For a decedent who dies in 2016, it is that year's applicable exemption amounts that will control for this purpose, regardless of what he does this year.