By Matthew A. Quick
The Power of Attorney
Welcome to the second issue of The Estate—the quarterly note intended to give access to easy-to-understand information and news involving real estate and estate planning.
The articles in this issue of The Estate concern the basics of powers of attorney and life insurance. Please note, powers of attorney must give specific direction to attorneys-in-fact to be an effective estate planning device. An attorney-in-fact is given broad power concerning one’s health care and property, which means they should also be given detailed instructions on how to use this power.
In addition, Clint Edgington offers his unbiased knowledge on the issue of life insurance. He warns against buying too much and suggests that securing a policy is a process that involves careful consideration of one’s needs.
The next issue, due in July, will address living wills and medical orders—estate planning utilities that allow a person to direct his or her health care without the use of an attorney-in-fact. Clint Edgington will return for an additional article on the pragmatics of life insurance. Also, Brian Rozycki, a home lending consultant, will focus on the practical use of reverse mortgages.
Thank you for your continued interest. In the event you have any questions or concerns regarding any legal matter, please contact me at your earliest convenience—I am always happy to help. Also, please note that all legal matters are unique, thus the information contained in The Estate may only be used for informational purposes and cannot be considered legal advice.
-Powers of Attorney-
Powers of Attorney are legally binding documents that designate and appoint a person (referred to as an “attorney-in-fact”) to act on behalf of the individual planning his or her estate (referred to as the “principal”). These documents may give instructions on everything from religious requests to comfort care; payment of bills to access to safe deposit boxes (referred to as “directives”).
Powers of Attorney come in two basic forms. A Power of Attorney for Health Care nominates an attorney-in-fact (referred to as a “Patient Advocate” in Michigan and an “Agent” in Illinois), to make health care decisions for the principal. An attorney-in-fact under a Power of Attorney for Health Care must accept his or her role as such after reviewing the principal’s directives. This acceptance assures the willingness of an attorney-in-fact to act on behalf of the principal, and pursuant to his or her wishes, prior to the attorney-in-fact being required to do so. The ability of the attorney-in-fact to act under a Power of Attorney for Health Care commences upon disability or incapacity of the principal. Generally speaking, a principal is deemed disabled or incapacitated if he or she is incapable of making informed decisions regarding his or her health care.
A Power of Attorney for Property appoints an attorney-in-fact (referred to as an “Agent” in both Illinois and Michigan), to direct the principal’s affairs concerning property and finances. Unlike a Power of Attorney for Health Care, an attorney-in-fact under a Power of Attorney for Property can be given the ability to act for the principal even if the principal is not disabled or incapacitated. Although not required, an attorney-in-fact should be asked to accept their role under a Power of Attorney for Property to ensure their willingness to act as directed.
Powers of Attorney do not come in any one standard form, thus are an excellent way for each of us to assure our values and wishes are honored when we are unable to communicate the same. These instruments prevent the need for a guardianship imposed through the probate court, which is a process that is time-consuming, costly and completely devoid of a principal’s appointments, values and wishes.
In sum, Powers of Attorney allow a seamless transition from principals caring for themselves, to principals receiving care.
For most, life insurance is a necessary component of a sound financial and estate plan. Life insurance is simply a contract between a policy owner and the insurer. Under a life insurance contract, the obligation of the policy owner is to either pay the insurer a premium lump-sum payment or premium payments on a regular basis. The obligation of the insurer is to pay out a lump sum death benefit to the policy owner’s beneficiaries upon the demise of the policy owner.
There are two major types of life insurance: temporary (referred to as “term”) and permanent. Term life insurance pays out a death benefit to the beneficiaries upon the demise of the policy owner, so long as the policy owner has paid a premium lump-sum payment, or has made regular payments, pursuant to the life insurance contract and the demise of the policy owner occurs within a limited term. At the end of the initial term of a term life insurance contract, the policy owner may attempt to secure insurance for an additional term; however, the insurer is not required to renew coverage based upon the original contract.
Permanent life insurance, on the other hand, pays out a death benefit upon the demise of the policy owner, regardless of any term, so long as the policy owner has paid a premium lump-sum payment, or has made regular payments, pursuant to the life insurance contract. If the policy owner has met the payment obligations, the insurer cannot usually cancel the policy owner’s permanent policy unless fraud occurred during application for the policy. These policies build cash value for both investment purposes and for paying the premium. Typical types of permanent insurance include whole life, universal life, and variable life policies.
Life insurance typically makes a poor investment; so, unless your situation dictates more complicated strategies, stick to term policies. They are cheaper and focus solely on what you want: life insurance. Common uses of life insurance include guarding a household’s income against the death of a breadwinner, payment of funeral and final expenses, the division of an estate into desired allocation among heirs, executing sophisticated tax strategies, performing business succession planning, implementing buy/sell agreements, etc. Please note that if your estate, including any proceeds from life insurance, is predicted to be above or close to the lifetime tax exemption (currently $3.5M), a more sophisticated analysis of your life insurance is needed than given in this article.
While death is not the most uplifting topic, a sound financial and estate plan can certainly make life feel more secure. In the next issue there will be a review of the process used to determine the amount of life insurance one should consider, probable beneficiaries, the practical length of a term life insurance policy and the most beneficial means to acquire a policy.
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Clint Edgington invites any questions or comments via email at C.Edgington@bhadvisory.com or via phone at 888.614.4625. Clint is the principal and co-founder of Beacon Hill Investment Advisory and is engaged in the practice of investment management and financial planning. Feel free to visit Beacon Hill’s web site at www.beaconhilladvisory.com.
Recent increase in Federal Deposit Insurance Coverage (FDIC) is only temporary. Recently, the base insurance limit was raised from $100,000.00 to $250,000.00, but will return to the original $100,000.00 base insurance limit on January 1, 2010, unless the increase is extended past this date.
The Real Estate Settlement Procedures Act (RESPA) has been updated. RESPA, for the most part, directs the requirements of real estate closings. The new provisions mainly affect the disclosures required at a real estate closing, thus helping buyers make better decisions when borrowing for residential real estate purposes.
New homeowner notice required in Illinois foreclosure actions. Plaintiffs in a residential foreclosure action are required to attach a “Homeowner Notice” with a copy of the summons. The contents of the notice include rights of the homeowner, warnings of fraudulent practices and foreclosure workout options.
In Illinois, a mechanics lien complaint must be timely delivered. The Illinois Appellate Court ruled that failure to deliver a copy of a complaint within 90 days of giving notice of the lien is fatal to a lien action.
I hope this issue of The Estate has been helpful. In the event you have any questions or concerns, or would like to schedule a complimentary consultation, I am available by phone at 773.790.8058 or by e-mail at firstname.lastname@example.org. As a service to all current and prospective clients, I travel at no charge to all meetings and consultations throughout Michigan and Illinois. In addition, informational sessions regarding estate planning are provided free to groups of any size. Please let me know if there is any way I can help and feel free to contact me at any time.