Trusts and Estates Blog

What is a Power of Attorney?

male in white shirt completing a blank formA Power of Attorney is a vital part of the estate planning, but what exactly is a power of attorney and why is it necessary to establish one?

The term power of attorney has been defined by Merriam-Webster’s Dictionary of Law as “an instrument containing an authorization for one to act as the agent of the principal that terminates especially upon revocation by the principal or death of the principal or agent called.”

I define a financial power of attorney as a document that allows others to handle certain financial transactions for you when you cannot handle them yourself. We will discuss powers of attorney for health care in another article.

A power of attorney is a document which the principal (you) sign, that appoints a competent individual (an attorney-in-fact) to act on another individual’s (the principal) behalf. Generally, the power of attorney performs many legal actions the principal cannot complete himself or herself.

Although most commonly established among older people, power of attorney can be beneficial in the lives of many people. Some people with critical illnesses establish power of attorney for the eventuality that they will not be able to handle their finances. But really, everyone should consider establishing a power of attorney. We never know when an accident or sudden illness will occur, rendering us unable to act on our own behalf.

Even if you don’t think you need a power of attorney, establishing one is never a bad idea. Choose someone you trust, and that person does not need to be a family member. However, a lot of thought needs to go into who should be your financial agent under a power of attorney.

We see a lot of problems caused by a poor choice of an agent for a power of attorney. By following these three guidelines, you can avoid problems altogether.

High Integrity – You want someone you can trust. If the person isn’t trustworthy, you open yourself up to outright theft of your assets, depriving your heirs of their rightful inheritance or depriving you of the care you need if you become incapacitated.

Financial Competence – Your agent may have to make a lot of hard financial decisions. You need someone who understands finances and that markets go up and down. You don’t want someone who will be taken by a fraudulent scheme or someone that will try to double your money in 90 days, and end up losing everything.

Financially stable – Since your agent could end up managing all of your money, you need to select someone who is financially stable, who will not be tempted to make “loans” to him or herself, says Von Tungeln. These loans are virtually never repaid.

If you would like more information concerning powers of attorney or any aspect of estate planning, contact Antelope Valley estate planning law firm Thompson | Von Tungeln (TVT) at 661-945-5868 or visit their websites at www.EstatePlanningSpecialists.com and www.Medi-CalHelp.com. www.EstatePlanningSpecialists.com is a comprehensive online resource for personal wealth management solutions through wills and revocable trusts. www.Medi-CalHelp.com is a comprehensive online resource for long term nursing home care for the middle class. As Board Certified Specialists in Estate Planning, Trusts and Probate as certified by the State Bar of California Board of Legal Specialization, partners Mark E. Thompson and Kevin L. Von Tungeln are expertly equipped to serve clients with the creative, effective and custom solutions they demand.

Gifting through a Family Limited Partnership

grandmother and grandchild looking t parkIn years past, many agricultural families passed on control of assets, properties, and family businesses through a limited partnership arrangement. The parents establish the children as “managers” of the business and slowly build their wealth through designating to them the maximum tax-free amount each year. That same strategy is what many financially successful families are using through family limited partnerships today.

A limited partnership is a special type of partnership where limited partners receive a share of the profits, but have no management responsibilities, and also no personal liability. The lack of personal liability is what drives most limited partnerships. A limited partnership requires a written agreement between the general partners (the business management) and the limited partners (the investors). The limited partners each make an investment and is guaranteed a pre-stated share of profits.

How does all this work when transferring money to posterity? Many parents or grandparents use the limited partnership model by designating themselves as general partners and their children as limited partners.

Just like in a limited partnership, there are one or more general partners (the parents) and one or more limited partners (the parents and the children). The limited partners have no control over the management of the partnership details and affairs and are also have none of the liabilities of the partnership.

Many advantages for establishing a family limited partnership exist such as the fact that initially, the parents are both the general and limited partners. Because of the restricted rights of limited partners, their shares are worth less than the general partners’ shares. Each year, the parents can gift the maximum, tax-free amount ($13,000 annual gift tax exclusion in 2011) of their limited partnership shares to their other limited partners (children). As general partners, the parents continue to manage their properties and assets while the children hold no managerial positions. Over time, this gradual gifting will shift ownership to the children while avoiding estate and gift taxing liabilities. In addition, this structure continues to provide asset protection for the limited partners. In some case needing even more asset protection, the general partner will be a corporation or LLC, and the parents will own the corporation or LLC.

In establishing a family limited partnership, be sure to follow the guidelines of your states’ limited partnership act (or have your attorney guide you). For more questions on family limited partnerships, call our offices at 661-945-5868 and we’d be happy to assist you. Antelope Valley estate planning law firm Thompson Von Tungeln (TVT) offers sophisticated estate planning and administration for the affluent, discriminating client. As Board Certified Specialists in Estate Planning, Trusts and Probate as certified by the State Bar of California Board of Legal Specialization, partners Mark E. Thompson and Kevin L. Von Tungeln are expertly equipped to serve these clients with the creative, effective and custom solutions they demand. For more information, contact TVT at 661-945-5868 or visit their websites at www.EstatePlanningSpecialists.com and www.Medi-CalHelp.com.

Trusts and Estates Blog