DURABLE POWER OF ATTORNEY

Durable powers of attorney permit you to name trusted individuals to act on your behalf in the event you become incapacitated. Durable powers of attorney fall into two broad categories: powers pertaining to general personal matters (general powers), and powers pertaining to health care (health care powers). General powers permit you to appoint an “agent” to handle all of your personal affairs such as banking, preparation of tax returns, sale of an automobile, and application for employee or government benefits as if you yourself were present. Health care powers allow you to appoint someone (sometimes called a “patient advocate” or “health care surrogate”) to make your medical decisions including “pulling the plug” in the event of terminal illness.

The Patient Self Determination Act requires all federally funded healthcare facilities to inform patients of their right to appoint a health care surrogate. All fifty states now allow for the appointment of a substituted decision maker with life cessation powers. Each state has its own terminology and rules. Your state may recognize “Durable Powers of Attorney,” “Living Wills,” “Health Care Proxies,” or “Advance Directives.” You should be aware that health care powers executed in one state are not necessarily effective in other states. Accordingly, separate health care powers should be drafted if you are splitting time between or among states.

Most powers of attorney come into effect at the time of your incompetence (some non-medical powers come into effect at their creation), and in all cases, end at your death. The term “durable” signifies that the power being granted continues to be effective despite your disability. A general non-medical power of attorney grants your agent the power to handle all of your personal affairs.

The power of the agent does not extend to assets owned by your revocable trust, since assets owned in trust are not considered to be personally owned by you. Your revocable trust addresses the issue of your disability by appointing a successor trustee to manage trust assets in such event.

Since the likelihood of becoming incompetent dramatically increases with age, it is important that you have powers of attorney. Absent proper planning, your affairs would come within the jurisdiction of the probate court. If you become incompetent without durable powers of attorney in effect, a public hearing must be held to determine your in-competency before appointing a family member, friend, or a court appointee to act as your Guardian and Conservator. Powers of attorney avoid such costly and intrusive probate proceedings.

REVOCABLE TRUSTS

Today, most estate plans employ revocable trusts. Their versatility and ease of administration make them indispensable for small and large estates alike. Revocable trusts may be used to avoid probate, provide for children of current or prior marriages, and to minimize federal estate tax. Revocable trusts are effective upon execution, and continue for so long as mandated by their terms. Assets passing at your death avoid probate since your death does not affect the continued existence of the trust.

For income tax purposes, your revocable trust is not a separate taxable entity while you are alive. It operates under your social security number, is not taxed, and is not required to file a separate income tax return. Income of the trust is taxed to you at your individual tax rate. Thus, while you are alive the trust is ignored for federal and state income tax purposes.