Attorney Lorene Lynn Mies and “TheWillsAndTrustsMinute” team, invite you to an informative and educational seminar on estate planning. During this FREE presentation you will learn:
• The difference between a Will and a Living Trust
• How to avoid probate, guardianship, and conservators proceedings
• What the “costs” of estate planning are
• How to keep the government out of your personal affairs
• Why even “small” estates need planning
• Why you need a Power of Attorney for Health Care (FREE!)
$250.00 discount on complete estate planning package for attending.
Refreshments will be served! Please let us know how many are coming so we can be prepared!
Temecula Public Library
30600 Pauba Rd.
Temecula, CA 92592
Seating is limited in all venues. Make sure you reserve your seat today by using the registration link below or call our office: 951.894.4791
Note: This article was originally published in the June 2012 issue of the Riverside Lawyer Magazine. The authors are Peter C. Anderson, United States Trustee for Central District Court Riverside Division and Abram S. Feuerstein, Asst. United States Trustee. Reprinted with permission of authors and the Riverside County Bar Association.
This article outlines the procedure that can allow a family member or friend to file bankruptcy on behalf of a person suffering from dementia or Alzheimer or other mental incapacity.
Older Americans are filing for bankruptcy at increasing rates.1 And as the age of the average bankruptcy debtor increases, it appears that there is an increase in the number of debtors filing bankruptcy who have chronic and disabling medical conditions. Some of these individuals may lack the physical capacity to undertake those actions necessary to complete a bankruptcy filing successfully and obtain a bankruptcy discharge of their debts. Others may lack the mental capacity or competency to make financial decisions. Inevitably, there has been a rise in situations involving family members seeking to file bankruptcy cases for incapacitated relatives.
Unfortunately, some aspects of the law in this area are unsettled and not well-developed. All too frequently, well- meaning relatives attempt to file bankruptcy cases for incapacitated, financially distressed family members in a hap- hazard, improper fashion. Often, they run to the bankruptcy court armed only with a doctor’s note attesting to the poor physical health or mental condition of their family member. Other individuals run to a local stationery store or look on the internet for a fill-in-the-blanks power of attorney form to support a bankruptcy filing. At times, family members risk committing bankruptcy crimes by forging documents and making false statements as they attempt to commence a bankruptcy case for a disabled or incompetent relative. Even experienced bankruptcy lawyers lack familiarity with the rules.
The first question is whether incapacitated individuals can file bankruptcy. The short answer is, “Yes.” The Bankruptcy Code contemplates that incapacitated individu- als may be bankruptcy debtors, and courts agree.2
Under Section 301 of the Bankruptcy Code,3 a voluntary bankruptcy case may be commenced only when an individual who may be a debtor files a bankruptcy petition. In turn, Section 109 states who may be a debtor. And that section contains no restrictions on incapacitated or disabled debtors.4
Filing Through a Representative or Next Friend
Given that disabled and incapacitated debtors may file bankruptcy, the next question that arises is who, if anyone, has the authority to file a bankruptcy petition on behalf of a debtor who lacks capacity. In answering this question, the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure provide only limited guidance.
Under Rule 1004.1, “[i]f an infant or incompetent per- son has a representative, including a general guardian, committee, conservator, or similar fiduciary, the representative may file a bankruptcy petition on behalf of the infant or incompetent person.”
Rule 1004.1 also provides that if an infant or incompetent person does not have a duly appointed representative, the person “may file a voluntary petition by next friend or guardian ad litem. The court shall appoint a guardian ad litem for an infant or incompetent person who is a debtor and is not otherwise represented or shall make any other order to protect the infant or incompetent debtor.”
Hence, to the extent that a bankruptcy petition is filed by a representative on behalf of an infant or an incompetent person, sound practice dictates that counsel should ensure that appropriate documentation is filed with the petition establishing the representative’s authority to file the petition. However, if no representative exists, the parties should follow Rule 1004.1 and seek an immediate court order appointing a guardian or a next friend.
Powers of Attorney
Other than the procedures outlined in Rule
1004.1 pertaining to “infants” and “incompetent persons,” the Bankruptcy Code is silent as to whether someone can file a bankruptcy case on behalf of another person. Thus, at least one court has taken a very restrictive view and held that, except as allowed by Rule 1004.1, a person may never file a voluntary case on behalf of another individual.6
By contrast, there are a range of bankruptcy decisions that authorize bankruptcy filings through the use of powers of attorney. Some of these decisions permit a petition to be filed pursuant to a broad, generic grant of authority contained in a power of attorney.7 Other cases prohibit a bankruptcy filing absent a specific, express provision that enumerates a bankruptcy filing as part of the authority conveyed under the power of attorney.8 A third group of cases takes a middle approach as to the necessary language in the power of attorney.9
Regardless of how a specific court will rule, practitioners must understand that bankruptcy courts are reluctant to permit a party other than the debtor to sign and file a petition under a power of attorney. As one court noted, “[t]he filing of a bankruptcy petition is a serious act which necessarily involves exposing the financial and legal affairs of the petitioner to all interested parties in a public forum.”10 Given its profound legal consequences, another court has observed, filing bankruptcy “should not be undertaken without careful deliberation.”11
Moreover, the bankruptcy process contemplates complete and accurate disclosure about a debtor’s financial condition – both in written bankruptcy schedules and statements, and in oral testimony at a meeting of creditors.12 Typically, this information is available only from the debtor personally. And absent extraordinary circumstances, creditors have the right to demand the personal participation of the debtor in bankruptcy proceedings as a condition of the debtor obtaining a discharge.
In sum, filing a bankruptcy case is among the most important finan- cial decisions a person will make during his or her lifetime. In light of the lack of clarity concerning the use of powers of attorney, the heightened importance of financial disclosure in bankruptcy cases, and the legal con- sequences of filing bankruptcy, attorneys should proceed very cautiously before advising clients to sign a bankruptcy petition for another person using a power of attorney. And in those extremely rare cases when a power of attorney is used, attorneys should check the language of the instrument to ensure that it authorizes a bankruptcy filing.
1 See generally, J. Golmant and J. Woods, “Aging and Bankruptcy Revisited,” American Bankruptcy Institute Journal (Sept. 2010); J. Pottow, The Rise in Elder Bankruptcy Filings and Failure of U.S. Bankruptcy Law, 19 Elder L.J. 119 (2011).
2 In re Myers, 350 B.R. 760, 762-3 (Bankr. N.D. Ohio 2006)
3 Unless otherwise noted, all statutory references are to the Bankruptcy Code, Title 11, United States Code, and rule references are to the Federal Rules of Bankruptcy Procedure.
4 In fact, Section 109 supports the ﬁling of bankruptcy by incapacitated and/or disabled persons. Most non-bankruptcy lawyers are generally aware that in 2005, Congress enacted substantial measures to reform the nation’s bankruptcy laws.
As part of these wide-ranging amendments, Congress enacted educational requirements for bankruptcy debtors. These mandate that debtors take a pre-bankruptcy credit counseling class, and, as a condition of receiving a bankruptcy discharge, debtors are required to take a ﬁnancial management course after they ﬁle bankruptcy.
Under Section 109(h)(4), incapacitated or disabled debtors are speciﬁcally exempted from meeting the pre-bankruptcy educational requirement. Similarly, the discharge provisions of the Bankruptcy Code exempt incapacitated debtors from the requirement of completing a post-ﬁling course. These provisions manifest a Congressional awareness that incapacitated persons could indeed be bankruptcy debtors, and Congress went the extra step of excluding such debtors from the newly enacted educational requirements.
5 The representative and/or would-be representative faces another hurdle involving the educational requirements added to the Bankruptcy Code in 2005. The code’s educational requirements may be a nondelegable duty. See, e.g., In re Hammer, 2008 WL 6177312 (Bankr. N.D. Ohio 2008). Instead of taking the class on behalf of a debtor or, worse, pretending that the incompetent debtor took the class and is capable of certifying
that the requirement has been completed, the representative may want to consider ﬁling a motion excusing compliance with the pre- and post-bankruptcy ﬁling educational requirements.
6 In re Vitagliano, 303 B.R. 292, 293 (Bankr.
W.D.N.Y. 2003); see also In re Smith, 115 B.R. 84 (Bankr. E.D.Va. 1990) (authorizing ﬁling through a court-appointed guardian having speciﬁc authorization to ﬁle bankruptcy, but not a power of attorney).
7 See, e.g., In re Hurt, 234 B.R. 1, 3-4 (Bankr.
8 See, e.g., In re Eicholz, 310 B.R. 203, 207 (Bankr.
9 See, e.g., In re Curtis, 262 B.R. 619, 622 (Bankr.
10 In re Brown, 163 B.R. 596, 597 (Bankr. N.D.Fla.
11 Curtis, supra, 262 B.R. at 624.
12 Section 343 requires a bankruptcy debtor to appear and submit to an examination under oath at a meeting of creditors
Why Most People Need an Estate Plan
If you have some assets (maybe just a car and some nice furniture) or minor children, you still need an estate plan–even if taxes are not an issue. Thanks to the $5.12 million federal estate tax exemption for those who die in 2012, most folks are not exposed to the federal estate tax right now. However, if you have some assets (maybe just a car and some nice furniture) or minor children, you still need an estate plan–even if taxes are not an issue. Here’s the scoop.
Why You Need a Will or Living Trust Document
If you die intestate (without a will), the laws of California determine what happens to your assets and your minor children. So unless you have an inordinate amount of faith in your beloved the California Legislature, you need a written will to make your wishes known. In addition to drafting a will, you will want to set up a living trust in order to avoid probate. You should hire an experienced estate planning attorney to draft the will and the living trust documents, and you don’t have to be “rich” to need one. Estate planning includes a puzzle of complex legal issues; probate law, civil law, tax law, trust law, real property law and debtor-creditor law. g
The main purposes of a will are to name a guardian for your minor children (if any), name an executor for your estate, and specify which beneficiaries (including charities) should get which assets. The guardian’s job is to take care of your kids until they reach adulthood (age 18 or 21 in most states). The executor’s job is to pay your estate’s bills, pay any taxes due, and deliver what’s left to your intended heirs and charitable beneficiaries. Remember: if you die without a valid will, state law generally controls what happens to your kids and your stuff. Not good!
The Living Trust
Another basic estate planning goal is to avoid probate. Probate is a court-supervised legal process intended to make sure a deceased person’s assets are properly distributed. Probate typically means legal fees and red tape. Also, if your estate goes through probate, your financial affairs become public information. These are things to be avoided when possible. That’s where the living trust comes in. Here’s how it works. You establish the living trust and then transfer legal ownership of certain assets (such as your home, your retirement accounts, your life insurance, and your coin collection) to the trust. In the trust document, you name a trustee to be in charge of the trust’s assets after you die, and you specify which beneficiaries will get which assets from the trust. The trustee could be your CPA or attorney, a financial institution, or a trusted friend or relative. Because a living trust is revocable, you can change its terms at any time, or even unwind it completely, as long as you are alive and legally competent.
For income-tax purposes, the existence of the living trust is completely ignored as long as you are alive. As far as the IRS is concerned, you still personally own the assets in the trust. So you continue to report on your Form 1040 the income generated by the trust’s assets and any deductions related to those assets (such as mortgage interest on your home). For state-law purposes, however, the living trust is not ignored. Done properly it avoids probate.
Wills and Living Trusts Are Not Cure-Alls
The benefits of a will or living trust are obvious. However, you won’t get the expected advantages without minding the details.
* If you are married, you and your spouse should have separate, but compatible, wills or living trusts. That’s because you never know who will die first.
* Your will or living trust will not deliver the expected advantages unless you make it compatible with your beneficiary designations and the manner in which your assets are legally owned. For example, when you fill out forms to designate beneficiaries for your life insurance policies, retirement accounts, and brokerage firm accounts, the named beneficiaries will automatically receive the money upon your death without having to go through probate; ditto for bank accounts if you name a payable-on-death beneficiary. It makes no difference if your will or living trust document specifies to the contrary. So keep your beneficiary designations current to make sure the money goes where you intend it to go
* When you co-own real estate jointly with right of survivorship, the other co-owner(s) will automatically inherit your share. It makes no difference if your will or living trust document says otherwise.
* If you set up a living trust, you must transfer legal ownership of the assets for which you wish to avoid probate to the trust in order for it to perform its probate-avoidance magic. Many people fail to follow through by actually transferring ownership, and the probate-avoidance advantage is lost.
Your Plan Is a Moving Target
Things change. You may acquire new assets, win the lottery, lose relatives to death, disown relatives, take them back, and gain children or grandchildren. Any of these events could require changes in your estate plan. In addition, the federal estate tax rules have been wildly unpredictable in recent years, and that trend may continue. For all these reasons, you should review your estate plan at least annually and update it as needed. Now is a good time to review your plan or to set one up if you don’t have one. Call my office today and set an appointment for your free consultation. I will review your current plan for free to determine whether or not any changes are necessary. Lorene Mies 951-894-4791.
What you need to know about estate planning, including why you may need a will and assigning a power of attorney.
1. No matter your net worth, it’s important to have a basic estate plan in place.
Such a plan ensures that your family and financial goals are met after you die.
2. An estate plan has several elements.
They include: a will; assignment of power of attorney; and a living will or health-care proxy (medical power of attorney). For some people, a trust may also make sense. When putting together a plan, you must be mindful of both federal and state laws governing estates.
3. Taking inventory of your assets is a good place to start.
Your assets include your investments, retirement savings, insurance policies, and real estate or business interests. Ask yourself three questions: Whom do you want to inherit your assets? Whom do you want handling your financial affairs if you’re ever incapacitated? Whom do you want making medical decisions for you if you become unable to make them for yourself?
4. Everybody needs a will.
A will tells the world exactly where you want your assets distributed when you die. It’s also the best place to name guardians for your children. Dying without a will — also known as dying “intestate” — can be costly to your heirs and leaves you no say over who gets your assets. Even if you have a trust, you still need a will to take care of any holdings outside of that trust when you die.
5. Trusts aren’t just for the wealthy.
Trusts are legal mechanisms that let you put conditions on how and when your assets will be distributed upon your death. They also allow you to reduce your estate and gift taxes and to distribute assets to your heirs without the cost, delay and publicity of probate court, which administers wills. Some also offer greater protection of your assets from creditors and lawsuits.
6. Discussing your estate plans with your heirs may prevent disputes or confusion.
Inheritance can be a loaded issue. By being clear about your intentions, you help dispel potential conflicts after you’re gone.
7. The federal estate tax exemption — the amount you may leave to heirs free of federal tax — changes regularly.
The estate tax hit $3.5 million in 2009, but was phased out completely in 2010, but only for a year. Unless Congress passes new laws between now and then, the tax will be reinstated in 2011 at $1 million.
8. You may leave an unlimited amount of money to your spouse tax-free, but this isn’t always the best tactic.
By leaving all your assets to your spouse, you don’t use your estate tax exemption and instead increase your surviving spouse’s taxable estate. That means your children are likely to pay more in estate taxes if your spouse leaves them the money when he or she dies. Plus, it defers the tough decisions about the distribution of your assets until your spouse’s death.
9. There are two easy ways to give gifts tax-free and reduce your estate.
You may give up to $13,000 a year to an individual (or $26,000 if you’re married and giving the gift with your spouse). You may also pay an unlimited amount of medical and education bills for someone if you pay the expenses directly to the institutions where they were incurred.
10. There are ways to give charitable gifts that keep on giving.
If you donate to a charitable gift fund or community foundation, your investment grows tax-free and you can select the charities to which contributions are given both before and after you die.
Call today for your free consultation and let me give you peace of mind. 951-894-4791