What Is the Difference Between a Springing and Non-Springing Power of Attorney?

A power of attorney is a document that grants various powers and responsibilities to a trusted third party or “agent” who can act on your behalf. This document usually only allows an agent to make non-medical decisions on your behalf. A power of attorney can be a valuable planning tool that lets you decide in advance who will manage your affairs should you become unable to do so. It can also be a way to avoid expensive guardianship or conservatorship proceedings if you become disabled or incapacitated.

The way a power of attorney is formalized varies from state to state. Some states have particular requirements and wording that must be in a power of attorney for it to be valid and accepted. You may have heard of the terms “springing” and “non-springing” power of attorney and wonder what they mean.

Springing Power of Attorney

A springing power of attorney is a document executed now, but that does not take effect unless the principal becomes incapacitated or a particular event occurs. This type of power of attorney is contingent on something specific happening before it comes into force. If the event or incapacity never occurs, an agent will not be empowered to act on behalf of the principal.

Many people want a springing power of attorney because they feel more comfortable knowing their agent can only exercise powers if a triggering event occurs. This can alleviate any concern that the agent may try to misuse a power of attorney.

A springing power of attorney is not always easy to use. Depending on your jurisdiction, it may be necessary to have a medical professional such as a doctor certify that a triggering condition has occurred.

Let’s say you become medically incapacitated. Where required, the professional will likely have to complete an affidavit attesting to your condition or that certain events occurred. Often, a medical professional will not be comfortable signing an affidavit or may require their own attorney to advise them on how to proceed. This can cause delays that can frustrate an agent’s ability to act, especially in time-sensitive situations.

Additionally, financial institutions may be reluctant to accept this type of power of attorney because it is difficult for them to judge whether you truly are incapacitated or if a triggering event has in fact occurred. A certain amount of caution on the part of financial institutions is understandable: When someone steps forward claiming to represent the account holder, the financial institution wants to verify that the individual indeed has the authority to act for the principal.

Non-Springing Power of Attorney

With a non-springing power of attorney, the agent has the powers granted in the document the moment it is signed by you and the agent(s) you designate. So, even if you are capable of signing for yourself or handling certain transactions, your agent could still sign for you without your involvement.

How Some States Approach Powers of Attorney

Many states have taken steps to address some of these problems. New York, for example, implemented a statutory form in 2021 that, if filled out and executed correctly, financial and other institutions will be more likely to accept. In particular, it has a provision where the agent agrees to reimburse the third party for any claims that may arise against the third party because of reliance on a power of attorney.

To help limit the potential for abuse by an agent, New York’s form also allows a power of attorney to be narrowly tailored to a specific purpose.

The laws of each state will vary when it comes to powers of attorney. For guidance on a springing or non-springing power of attorney, consult a qualified attorney in your area.

3 Tips When Including Caregivers in Your Estate Planning

November will mark National Family Caregivers Month. You may have a caregiver in your life to whom you wish to bestow your gratitude by designating them as an heir in your estate plan. Whether your caregiver is your own child — or a niece, nephew, grandchild, godchild, stepchild, or even a caregiver who is not related to you — how can you ensure your wishes are fulfilled?

It is your prerogative to leave your property and assets to anyone you would like. Often, the best way to do this is through a will or estate planning. However, you should be aware that in many instances, money or assets left to a caregiver can be viewed with suspicion and potentially subject your planning to legal challenges. To avoid this, consider the following tips:

1. Make your family aware of your plans.

If you would like to leave a financial or other gift to a caregiver, inform your family of your wishes and reasons for your decision. This is especially important if your children or loved ones who don’t live close by cannot witness in person the impact a caregiver may have on your day-to-day life. Without this familiarity, they may be suspicious about a caretaker’s sway over you and believe that person improperly influenced your decisions.

In some states, there are laws that set forth that property exceeding a particular value left to a nonrelative caregiver is presumed to be fraudulent if a will or trust is challenged. If your family is unaware of your wishes, they may assume foul play. Your estate may be subject to an expensive and unnecessary will contest.

2. Don’t wait until the last minute to make changes to your will.

If you wish to give a financial gift to a caregiver who improved the quality of your life, it is best to make any changes or updates or prepare a will when you are not ill or in cognitive decline. Family members who may not be happy with your choice may try to object to your will and use these circumstances to argue you were not of sound mind or there was undue influence on your choices. The earlier in your estate planning journey you make any decisions regarding inheritance to caregivers, the better.

Another item to consider is getting a letter of competency from a physician that certifies you can make informed decisions about your health care, finances, and other matters. It is best to do so contemporaneously with the execution of a will, estate plan, or any revisions to existing documents.

3. Gift money or assets during your lifetime.

You may wish to consider gifting money or assets while you are alive if it would not negatively impact your needs or care. Currently, there is a federal gift and estate tax exclusion of $12.06 million ($24.12 million for married couples). A person can give away — during their lifetime or at death — up to this amount, tax-free. However, there are some items that you should consider before making any significant gifts.

One issue is that many states have their own gift tax rules. For example, New York does not have a gift tax, but it does have a three-year clawback rule. So, any gifts a person made three years before their passing could be “clawed back” and included in calculating the value of a person’s estate for purposes of estate taxes. This could financially affect heirs in your will.

Gifting or transferring assets may also affect your Medicaid eligibility for nursing home or at-home care. Some states allow certain assets to be transferred to caregivers who meet specific criteria without these transfers affecting eligibility. However, do not assume this is applicable in your state without consulting with an attorney.

If you are thinking about bestowing a gift or inheritance on a caregiver, consult with your estate planning attorney.

What Does It Mean to Be Estranged?

Estrangement refers to a breakdown in a relationship, such as a relationship with a spouse or family member, where there is no longer any communication, or communication has become hostile, and the individuals lead separate lives. Although estrangement can significantly impact individuals’ lives, it is not a legal term and, in many cases, might not have a legal effect.

Suppose a man is estranged from his son. They occasionally speak on the phone, but the conversation always ends in a fight. They no longer get together for holidays and do not feel close. However, the father does not have a will, and the son still has the legal right to inherit under his state’s intestacy law. For the father to disinherit his son, he must make a will.

Estate planning lawyers recommend explicitly disinheriting an estranged family member. In many cases, mere bad feelings and lack of contact likely are not sufficient to remove legal rights.

Estranged Spouses

Imagine a couple gets married, but after a few months are not getting along. Rather than getting divorced, one spouse moves away and stops contact. The spouses are estranged.

Estranged couples are still legally married. Although the romantic relationship may have ended, they remain married under the law. Two people could be estranged for decades but nevertheless be officially married. They might live separately and have limited to no communication, but are not divorced or in the process of dissolving the marriage.

If you and your spouse are estranged, you need to get a divorce before you can remarry, divide your marital assets, or disinherit your spouse. Estranged spouses may retain their rights under the marriage, such as inheriting from their spouse, making health care decisions for their spouse as next-of-kin, and having rights to marital assets.

In some states, couples can become legally separated. Under legal separation, a couple may live separately, yet keep the right to be on each other’s health care plans, make medical decisions, inherit property, and reconcile the marriage. In states that do not allow legal separation, spouses may elect estrangement without committing to divorce, thinking they might repair the relationship in the future.

In abandonment cases, one partner leaves the other and might cease all contact, or contact might be sporadic. Abandoned spouses might not dissolve the marriage because they cannot afford an attorney or do not understand the law and think they are already divorced.

Even if you cannot find your marital partner, you can get a divorce. Most jurisdictions require that you or your attorney attempt to locate your estranged spouse to notify them of the divorce filing.

For example, your attorney might research your spouse’s possible addresses and send letters to these addresses informing them of your divorce. If your spouse does not respond, your divorce will be uncontested, and the court can grant your divorce, particularly if you and your spouse do not share assets, which is common in cases where spouses haven’t been together in years.

To learn more about the legal effects of estrangement, speak to an attorney.

Don’t Yet Want Your Heirs to Know About Your Assets? Use a Quiet Trust in Your Estate Plan

Trusts are great tools for leaving assets to your heirs while maintaining control over their access to those assets. In many cases, you would tell your beneficiaries that you have made a trust for them. However, this is not always desirable — and this is where a “quiet” trust may be helpful.

A quiet trust is a trust created much like other trusts, but with little to no notice given to its beneficiaries. A person, called a grantor, places assets in a trust managed by someone who is appointed as a trustee.  

The trust document may provide that income will only be distributed to a beneficiary once specific conditions are met — for example, when the grantor passes away or the beneficiary reaches a certain age. It may further require that no information regarding the accounting of the trust, what the trust owns, or other details will be provided to a beneficiary until certain conditions or timeframes occur.

Advantages of a Quiet Trust

Many people turn to quiet trusts for their children or grandchildren. They want to avoid their heirs relying on these future resources and becoming complacent instead of developing themselves financially or professionally. The idea is that if the beneficiaries don’t know about the money, they will work harder to create their own wealth and develop good financial habits. Many trust grantors hope that this personal development will make it more likely that once their heirs receive income or assets in a trust, they will be better equipped to manage and preserve these resources.

In other situations, you may wish to keep a trust a secret as a matter of privacy. A quiet trust can control the number of people who know about the trust. This can prevent family disputes if one person will receive more than another. It can also prevent heirs from talking too much about what they may receive, misusing the information, or being taken advantage of. For example, some parents may be concerned about their children’s creditors or anyone trying to get close to them for the wrong reasons.

A quiet trust can shield your loved ones from these problems and help them overcome any disincentive to develop themselves to be the best they can be. In addition, just like an ordinary trust, a quiet trust can be used for estate tax planning and avoiding the lengthy and expensive probate process. Depending on how they are set up, quiet trusts can also delay when the assets are taxed as income.

When a Quiet Trust May Not Make Sense

However, there are situations where a quiet trust may not work for you or your family. For one, you may wish to involve your children in your financial planning or discussions about your assets.

Sometimes keeping information secret can also backfire. Your heirs may not be prepared for suddenly receiving large sums of money or investments if they are unaware of them. For example, if you leave them rental property and they have moved to another state by the time they receive it, they may not be able to manage the property easily.

The lack of disclosure may also create a certain amount of distrust or resentment.

Setting Up A Quiet Trust

How you set up a quiet trust will likely vary based on state law. The basic process involves drafting a trust agreement, transferring assets, and implementing the terms of the trust. You should ensure that the person you choose to manage your trust is someone on whom you can rely. The wrong person could mishandle assets, fail to keep proper accounting, or miss deadlines for filing tax returns.

This process is best overseen by an attorney and other professionals, such as a financial planner and CPA familiar with trusts.

For guidance on quiet trusts, consult your attorney.

Who Are Parties to an Estate?

When people pass away, their assets go through probate — a legal process that distributes the person’s assets after death. The parties to an estate are the people involved in the probate process.

Although not technically a party to the estate, the deceased person — called the testator or decedent — is essential. When people make wills, they can choose beneficiaries, selecting people who have an interest in their estate. In the case of those who die without having made a will, state law often dictates who inherits the estate and determines the parties involved.

Parties to an estate include:

• Beneficiaries. Beneficiaries are people named in a will. Testators — people making wills — can leave assets to specific beneficiaries, such as family members and friends. Anyone a testator chooses can be a beneficiary. When making wills, people can leave a beneficiary a portion of the total estate and make specific bequests to individuals, leaving them personal items of sentimental or monetary value.

• Heirs-at-law. State law also provides a framework for who should inherit an estate if a person dies without a will. The distributes or heirs-at-law are the people who have a right to inherit if the decedent died intestate (without a will).

• Fiduciaries. The fiduciary is the person tasked with carrying out the estate plan. If the decedent had a will in place, the fiduciary is the executor named in the will. An administrator will handle their affairs if a person dies without a will. Often, the administrator is a close family member, such as a surviving spouse or child.

• Creditors. Creditors are also parties to an estate. When a person dies with outstanding debt, creditors can receive money from the decedent’s estate.

In specific cases, there might be other parties to an estate:

• Trustees. Trustees become involved when a person establishes a testamentary trust — a trust created in a will.

• Guardians. A guardian may be a party to the estate when a person leaves behind minor children. Individuals can name guardians for underage children in their wills.

Learn more about the basics of estate administration.

5 Smart Estate Planning Strategies for High-Net-Worth Families

If you are a high-net-worth individual, it’s essential to have a comprehensive estate plan in place. However, every family’s circumstances are unique, and there is no one-size-fits-all solution for estate planning.

Below are five estate planning strategies that may be right for you:

1. Make Sure You Have An Estate Plan

For higher-net-worth individuals or families, it is essential to have basic documents in place, such as a will, power of attorney, and advance directives. However, it is equally important to consider whether you need to take additional steps to avoid estate taxes or ensure long-term care, should you need it.

Start planning sooner rather than later. More options are available to you when you have time on your side.

2. Consider Options to Avoid Estate Taxes

There are numerous ways to avoid estate taxes, many of which require you to make an “irrevocable” transfer of your assets. This does not mean you cannot benefit from the income generated by your assets, but rather that you title the assets to a trust managed by someone else.

Here are some examples of options that can help lower your estate taxes and accomplish other goals you may have:

• Charitable Remainder Trusts: These irrevocable trusts can pay you or beneficiaries annual income from assets you donate to the trust. The remainder of the assets will go to one or more charities you designate. They can help you plan for retirement, reduce your taxable estate, and accomplish your philanthropic goals.
  

• Spousal Lifetime Access Trusts: A spousal lifetime access trust (SLAT) is one way to transfer your wealth to the next generation. In a SLAT, a spouse makes a gift into the trust to benefit the other spouse. As a result, this removes the gifted asset from the spouse’s combined estates.
  
  This allows you to take advantage of the current federal lifetime gift and estate tax exclusion(currently $12.06 million per person, or $24.12 million for married couples), which is set to expire in 2026. The spouses can still retain some access to the assets. Any post-gift appreciation in value is excluded from federal taxation for both spouses’ estates. However, federal rules permitting this trust will sunset on December 31, 2025.
  

• Grantor Retained Annuity Trusts: A Grantor Retained Annuity Trust (GRAT) is a trust through which you may transfer appreciating assets to your heirs and minimize gift or estate taxes. High-net-worth individuals and couples can use GRATs to freeze the worth of their estates and transfer any increase in the value of their assets to their loved ones, all with minimal tax consequences. A GRAT is also another way for you to plan for your retirement.
  
  To establish a GRAT, a donor creates a trust for a certain number of years and, during those years, is paid an income stream or annuity from the GRAT. When the GRAT ends, whatever assets remain will pass to your chosen beneficiaries. If certain conditions are met, you can minimize estate and gift taxes.

3. Engage in Gift Planning

Gifting wealth up to your lifetime exclusion may be a smart estate planning strategy for many high-net-worth families. This allows you to gift up to your lifetime exclusion before your death and not owe any gift tax on gifted amounts until you exceed this threshold.

Based on 2022 gift tax exclusions, a married couple could give away up to $24.12 million without tax consequences. In addition, after they exceed the lifetime amount, they can continue to gift at the annual limit of $16,000 (as of 2022) every year without owing gift taxes.

However, you should gift cautiously while fully informed of your state’s rules. Many states have their own rules regarding gift and estate taxes, which may be incompatible with federal tax rules.

4. Invest in Life Insurance

Another strategy to consider is investing in a good life insurance policy. Life insurance can be used to pay estate taxes and to devise assets or specific amounts to your loved ones.

For example, if a large part of your family’s estate will be illiquid assets, such as real estate or a business, your estate could owe more in taxes than is available to it in liquid funds. Your estate can use the proceeds of a life insurance policy to pay these taxes, so your heirs do not have to sell a family business or investment properties.

You can also use your life insurance policy to “equalize” inheritance. For example, perhaps one child is better suited to run a family business. In this case, you could leave this child your business and another child a life insurance policy equal to the company’s value.

5. Don’t Forget About Portability

Consider whether you may qualify for portability before the current federal estate and gift tax exclusions expire in 2026. If your spouse passed away within the past five years, you might be able to file an estate tax return and transfer their unused estate tax exclusion to yourself. So even if you do not pass away until after 2026, you may be able to add millions in tax exclusions to the benefit of your heirs.

You must follow specific procedures to elect “portability” of your spouse’s unused gift and estate tax exemption, and there are exceptions to which estates may qualify. However, if this is an option in your family’s case, it could result in hundreds of thousands of dollars in tax savings.

Speak With a Professional

In considering all the estate planning strategies available to you, it is important to speak with an experienced estate planner. Keep in mind, too, that when it comes to trusts, each state has its rules and laws that govern which ones are or are not permissible, in addition to varying estate or gift tax rules.

A qualified estate planner in your area can help determine which strategy is best for your circumstances.

Estate Planning After Divorce

So, you’re officially divorced. In starting this new chapter of life, you should update your estate planning documents as soon as possible. You may no longer be legally married, but divorce does not automatically remove your prior spouse from your will, trust, or beneficiary designations. Here are some items to consider updating:

Change Your Advance Directives

When you engage in estate planning, it is standard to complete forms such as a health care proxy or living will. Often, spouses will choose each other as their agents for making health care decisions if they become incapacitated. After a divorce, your ex may be the last person you want handling these matters. Change your documents to appoint someone you trust.

Update Your Power of Attorney

Another document you may have previously executed is a power of attorney. This can give another person a great deal of control over your assets and personal and financial affairs. If your current power of attorney names your prior spouse as your agent, you can revoke it and sign a new one choosing a different person to act as your agent.

Amend Your Will and Trust

Many couples designate their partner as the executor of their will. Your ex may also be listed as a beneficiary of your will. If you do not want your former spouse to have a say over how your assets are handled or to receive any inheritance, it is important to review and amend your will now to take them out. The same goes for any trust you may have created where your ex is the trustee or a beneficiary.

Guardianship of Your Minor Children

If you have concerns about your prior spouse’s ability to be a guardian to your minor children, there may be steps you can take to mitigate any instability a divorce may have brought to the situation.

One option is to set up a trust for your children that will protect assets from being irresponsibly depleted. Life insurance amounts or other assets placed in a trust will be managed by a person whom you can name as trustee. This will prevent the other parent, who could otherwise be in control of minor children’s finances, from accessing certain funds.

Be Aware of What Insurance You Are Required to Maintain

Many divorce settlements set forth that one spouse maintains life insurance and specifies who shall be a beneficiary of the policy. You should ensure your current life insurance policies not only comply with your divorce agreement, but also are not in danger of lapsing.

The same goes for medical insurance. If you are required to maintain medical insurance in a certain manner, review your plan to ensure the correct parties are covered and that it is in good standing.

Failure to comply with your divorce agreement can cause you to wind up back in court.

Review Your Beneficiary Designations

If you are not required to maintain your ex as a beneficiary on your life insurance or retirement accounts, now is the time to update your designations. You should contact your insurance company or retirement administrator to make these changes. Upon your passing, the funds will go to whomever is listed as a beneficiary, regardless of a divorce proceeding.

Consult a New Estate Planner

The best thing you can do after your divorce is work with an estate planner to review your current documents and update them appropriately. Ideally, this person should have no connection to your prior spouse. Keep a copy of your divorce decree and settlement agreement handy. An estate planner will need to review it to evaluate what you need going forward.