This is a continuation of our Estate Planning Series posted the 4th Wednesday of the month. Below are portions of an interview with Attorney, John Kenney located in Poulsbo, WA.
JASON: Whom do people typically appoint as their financial power of attorney or their durable power of attorney?
JOHN: If it is a married couple and the other spouse is capable, the healthy spouse is usually appointed. I say healthy spouse because one will be unhealthy or incapacitated if the durable power of attorney has to come into play. Oftentimes, we will also have clients name a secondary person because it is possible that the spouse could either die or become incapacitated also. Clients will often appoint adult children if they have adult children who are responsible and they trust.
It is important that the individual be trustworthy and capable of managing someone’s legal and financial affairs. If clients do not have adult children or spouses whom they trust or who are capable, they will name a trusted friend, and ultimately, if they do not have any friends who are capable or who they trust, they could name a professional such as a CPA, attorney, or financial advisor whom they trust or have trusted in their lives.
JASON: Why do they call it either financial or durable power of attorney?
JOHN: People use powers of attorney at various times throughout their lives. If you are buying a car, the dealer will actually give you what is called a limited power of attorney so the dealer can file your title and registration for you when you purchase that car. Anyone who has bought a car has probably signed one of these things. Limited purpose powers of attorney expire when the person’s purpose is completed.
Often, you will give power of attorney to a spouse to accomplish certain tasks. Those are also limited and expire. If you become incapacitated, you don’t want your power of attorney to expire, so a durable power of attorney will endure your incapacity and continue throughout it and not expire.
JASON: I want to back up just a minute. Will you speak for a minute about what probate is and how it works with a will?
JOHN: Absolutely. Basically there are four primary purposes of probate. Number one is, if an individual has a will, to take that will and read it, and ultimately, distribute the property or the assets to the individuals whom the will says to distribute them to and in the manner it states.
Secondarily, the purpose of probate is to notify any creditors of the death of this individual so the creditors can make a claim to get paid any money the deceased owed them. That is why you will often see in the newspapers long notices in the classified sections that will say “notice to creditors” of the probate of the deceased individual.
Third, as I mentioned before, is to appoint guardians for minor children if a person had minor children. The court actually appoints the guardian, but the will tells the court whom the deceased person wished to appoint.
The last purpose of a probate procedure is to notify all of the heirs or beneficiaries or people who want to claim to be an heir of the deceased. I often have clients who want to avoid probate so we will create a revocable living trust, which we can talk about later, because a revocable living trust avoids probate if created and implemented correctly.
I once had one client who told me he wanted to avoid probate because thirty years earlier he had had an illegitimate child, and he wanted to avoid the notice that goes out in the paper so this individual wouldn’t come to the probate process and try to make a claim against the net worth of his estate and emotionally upset his spouse.
In some states, probate can be very expensive. Thankfully, in Washington State it is not that expensive relative to other states, such as California. One thing many people do not know about or are unaware of, is that if they own property in multiple states, then a probate is necessary in every state where they own property. Property is not necessarily only real estate. It can be a timeshare that has a contract. It can be an investment account that you opened when you were in college in California. I had one client who died, and unbeknownst to his children, he had opened an investment account in LA while he was in college. It had grown to a substantial amount, but he had never transferred it to a local branch; the State of California made the family go through probate in California because California is one of those very expensive states and the state wanted its piece of the action.
Probate in Washington State, without an aggravating-factor, like out-of-state property, is not that expensive and not that problematic. By law, the court is required to take four months. That is the absolute minimum that a probate process can take because it is written in the law.
Typically, a standard-type probate will take six to nine months and sometimes a year. I did a probate that lasted five years because the individual who died had some creditors who were trying to come after that individual at the time of his death, so it took five years to resolve all of those creditors’ claims. All the children of this individual stood waiting until the claims were resolved, and then the children were eventually paid their inheritance.
JASON: I heard probate is a public process, and that concerns some people. What is it that concerns people about it being a public process?
JOHN: It can concern people because they do not want people who claim to be their creditors to come after their spouse or their children, or to try and take their property. Also, as I mentioned, they may not want their potential heirs or probably more accurately, the people who claim to be heirs, to try and make a claim against the net worth of their estate.
More importantly, the probate files and court records are also available to the public. My partner and I have found social security numbers on numerous occasions when we were looking back at old probate records and court files.
These files contain the address of your real estate, the value of your real estate, and sometimes, they contain your social security numbers. They should not, but it happens. Anybody can check out files and find that information at the court clerk’s counter, and in some counties in Washington where the records are all online, you could actually go online and find it. For people who have a desire to be private, it is not the best alternative because it is all public.
JASON: Jumping forward, what is healthcare power of attorney, why is it important, and who should have it?
JOHN: A healthcare power of attorney is similar to a regular power of attorney because it becomes effective if someone is incapacitated. An individual pre-approves or pre-appoints another individual, usually called a healthcare agent, who is healthy and able to make decisions, to make healthcare choices for that individual.
The healthcare choices can be as simple as the individual needing some surgery, but he or she is unconscious and not able to authorize it for him or herself, so the healthcare agent just goes ahead and authorizes the surgery. Then that individual wakes up, and he or she is fine.
It could also be as serious and grave as making the decision to remove life support, which is one of the specific powers usually appointed to the healthcare agent. I tell people to choose someone who has his or her head on his shoulders as far as managing finances and legal things for his financial power of attorney, but being a healthcare agent takes more than that.
Sometimes healthcare decisions have spiritual consequences. Sometimes they have heavy emotional consequences so the individual you are choosing to be your healthcare agent should have the ability to make these types of emotional and spiritual life-ending decisions.
Oftentimes, when an individual goes in for routine surgeries, the hospital will ask whether the person has a living will and healthcare power of attorney. The living will is yet another document that expresses an individual’s desire if he or she is in a specific condition such as permanently brain dead, comatose, or other permanently ill-type conditions. There are a number of definitions, but those are the most common.
An individual makes a decision in advance about whether to be kept alive, meaning the body’s brain is dead and not functioning, but medical providers are keeping the body’s blood and lungs pumping indefinitely with machinery and respirators, or not. Would that individual prefer to have life support removed so he or she can just pass away? The medical agent or healthcare agent who is appointed in the healthcare power of attorney would make that decision with the family members in counsel with the doctors.
The reason these two documents are very important is, first, keeping somebody alive in the hospital without the proper legal authorization to remove life support can be very, very emotional on a family, and if no one is appointed to make that decision, sometimes the decision is never made.
The second consequence is financial. People fail to realize in the immediate situation, until a month or two later, the financial consequences. For instance, if a husband and wife did not have a lot of savings, did not have a living will and/or a healthcare power of attorney, could not make the decision, and let the individual kind of linger for a week or two, then the medical bills can be tens of thousands of dollars per day. I have had clients who said, “Yeah, Mom had a living will, but we let her stay alive an extra three or four days to let the family fly in and gather, and it cost us an extra $100,000.” People do not sometimes grasp the financial consequences you can leave your spouse with if, in fact, you do not have a document like this.
The final document, just to mention it briefly, that goes along with these other documents is the HIPAA authorization. Anybody who has ever been to a doctor in the last five or six years has signed something that has this acronym HIPAA on it.
In 2003, a federal law went into effect that says no individual is allowed to receive healthcare information about another individual without prior pre-authorization. This law made it illegal for medical providers to pass healthcare information to family members or healthcare agents without pre-authorization so the HIPAA authorization lists all these people and allows the medical providers to disclose that person’s condition to them so they can make decisions regarding him or her. How can you make decisions if you can’t be told what the condition is?
The opinions and information voiced in this material are not intended to provide specific advice or recommendations for any individual. Please consult a licensed estate planning attorney BEFORE taking any action.
A WORD OF CAUTION! Estate planning and the laws around this subject are unique to the state in which you live. Because most of the people I serve are here in Washington State, I focused on the issues in Washington State. Obviously if you are reading this outside of Washington State, you should consult with an expert estate planning attorney in your area.
Luce, Lineberry & Kenney ps
Attorneys at Law
John Kenney, LLM
17791 Fjord Dr NE Suite 154
Poulsbo, WA 98370-8482
Sherrard, McGonagle, Tizzano
Attorneys at Law, Est. 1954
Richard C. Tizzano, PS
19717 Front Street
PO Box 400
Poulsbo, WA 98370