Sunday, May 27, 2012

Tuesday, June 28, 2011

Friday, May 30, 2008


I had a long time friend pass away recently. Janie and I went to school together beginning in the 3rd grade. She was a “girl” friend in every sense of the word. When we graduated from high school, as in most cases, we went our separate ways. After I moved back to town, she contacted me, and I would talk to her once a year, usually on my birthday.

In 1992, she called my office and requested that I draft up a will for her. That is about the time Living Wills were added to the “death document” list, and I had her sign one of those also. What she didn’t tell me is that when she was a toddler, she suffered from polio. There was a full recovery, or so she thought. The next time I heard from her, she was in a psychiatric hospital. Apparently, the polio settled in her brain, and re-emerged when she turned 45 causing her brain to shrink.

Then all contact ceased. I heard that she her mental condition was deteriorating slowly but surely. Several months ago I got a call from another lawyer in town telling me that Janie was in a coma, and was brain dead. He represented another friend of Janie’s who called him in for help. She had no family, and they were struggling to get the machines turned off to let her die in peace. He was looking for a will, hoping that the executor of the will could make the arguments relating to the machine issue. He had found some correspondence from me to Janie in her papers, and hoped I could shed some light on things. All parties were at the same time happy, and deeply saddened, that Janie has signed a living will. We presented it to the doctors that afternoon, and Janie died within an hour.

As technology and medical care improves, the line between life and death becomes more and more blurred. The burden of making tough life and death decisions is increasing each year. It’s easy to say when we or our loved ones are living: “Don’t let that happen to me. Turn the machines off.” It’s another thing to do it. A Living Will takes all doubt and any guilt away from the surviving loved ones and/or friends.

Health Care Powers of Attorney, which I addressed in a previous article, do contain these types of provisions, but are mostly used for by caretakers for extended health care issues if the grantor cannot make those decisions him or herself, as in a stroke, for example. Living Wills, on the other hand, are issue specific. If I am brain dead, turn off the machines. They do not rely on the decision having to be made by someone else.

Ohio has a standardized Living Will form. It must be witnessed by two people or be notarized. Either way is sufficient. It has initial lines authorizing the health care provider to not provide artificial nourishment or liquids if you are brain dead. It also has provisions for organ donor type activity, which tend to complicate the form. I generally ignore it if provisions for organ donation have been made on one’s driver’s license.

For Living Wills and Health Care Powers of Attorney, I have my clients sign several forms. I keep an original in my file, and advise them to keep an original with their important documents, and give an original to their family physician as well as a copy to whatever family members they deem necessary, or at least let them know where an original can be found.

As always, check with your legal professional before signing anything. Any such legal document is powerful by its nature, and should be used in conjunction with a complete estate plan.

Friday, April 4, 2008

Health Care Powers of Attorney

So, you have a stroke and you are lying in a hospital bed unable to make any medical decisions for yourself. Who is going to do it for you? If you are married, your spouse….to a degree. If you are not married, someone may have to go the court to get authority to gain access to your medical information and then make decisions on your behalf.

Back in the day, these sorts of things were relatively easy. The doctors would work with “the family”, including spouses and children. But as of late, and especially since the passage of HIPPA, the medical privacy act, it has become an insurmountable chore to deal with these types of issues.

Don’t assume that your spouse has the authority to make decisions for you. The bureaucracy created by HIPPA and related legislation now makes it almost impossible for even the patient to get information for himself. When my father who was dying in St. Elizabeth’s Hospital, after being on its staff for 50 years as an oral surgeon and head of its intern program, called down to the lab to get some test results, the lab refused to give them to him unless he got out of bed, IV and all, and trekked down to the lab to prove who he was personally. Horror stories abound with this sort of thing.

The solution is something called a Durable Power of Attorney for Health Care (DPOAHC). It gives the authority to make health care decisions on your behalf to someone you trust if you are unable to make them for yourself. When you check into a hospital now, it is the second document that is requested after your insurance card…even more important than a living will.

Yes, spouses should have these things naming each other. It eliminates any red tape one might encounter. If your spouse is unable or unwilling to accept the responsibility, name only ONE of your children… not two or three. If a tough decision needs to be made, it eliminates a family squabble. If there are no children, pick a trusted extended family member or friend to help you out in these very important matters.

The most important power under a Health Care Power of Attorney is the decision to pull the plug, so to speak, if you become brain dead with no hope of recovery. It is redundant to a Living Will, but gives the doctors some added protection, as well as giving a degree of comfort to those having to make the decision.

But mostly Health Care Powers of Attorney are utilized when one becomes incapacitated with a stroke, for example, and cannot make decisions for him/herself. Decisions relating to rehab, or nursing homes, or other long term care choices are handled by the holder of the Power. I hold Health Care Powers for several of my clients with no family. Decisions I make range from whether the individual should get a flu shot to doctor choices or whether to call an ambulance if the client is unresponsive. These aren’t frivolous matters. The Terry Schiavo case of several years ago is a prime example of what can happen if there is no written Health Care POA.

The State of Ohio makes available pre-printed Health Care POA forms; but pre-printed doesn’t mean unimportant. On the forms, the maker of the Health Care Power must specify whether or not artificial hydration or feeding should be discontinued under specified circumstances. There are also blanks for specific instructions in special types of situations that the individual may face. Finally, it must either have two witnesses or be notarized.

As an attorney, I can tell you that years ago, forms like this were afterthoughts. Today, this form is probably one of the most important things I discuss with my clients, and spend the most time in helping them make decisions relating to very complicated and emotional issues.

Finally, Heath Care POA’s are NOT financial Powers of Attorney. Those are completely different animals, and should be addressed separately.

As always, make sure to consult a professional in all matters such as this. Anyone can generate a document. It is the information and advice that comes with it that are important.

Friday, March 21, 2008

What Does Probate Mean?

Many people get confused as to the meaning of probate. It is very simple. Probate is the process through with the Probate Court distributes the assets of a deceased person, that have not been distributed by some other manner, either in accordance with the person’s will, or if no will, through the laws of the State of Ohio. It consists of a 2 step process: 1) determining whether there is or is not a will and authenticating the will if one exists; and 2) distributing the assets of the individual according to the will or the Statutes of Descent and Distribution.

There are common misconceptions about the nature of “probate.” Some are minor, such as: executing a will is not probate. Depositing a will for safe keeping with the Probate Court is not probate. A Power of Attorney has nothing to do with probate.

Others tend to be more serious:

1) The probate process and estate tax issues are connected, but not related. They are two different things. It is easy to avoid probate. It is much harder to avoid estate tax, which may be owed whether or not an estate is probated.

2) Just because your will states that certain people are supposed to get certain things doesn’t mean that it is going to happen that way. Things that pass outside of probate, such as joint and survivorship property, are not governed by an individual’s will, and hence not subject to probate.

3) Most people can generally avoid the probate process with proper planning. In many cases, however, probating an estate may be beneficial. Examples may be if there are feuding family members and the court is needed to referee any anticipated controversies, or if there are custodial issues with minor children involving potentially large inheritances, or if there are incompetent beneficiaries, or if matters may be so complicated court intervention would be deemed necessary. All of these would benefit from the probate process.

4) Contrary to popular belief, the probate process does not eat up all of an estate’s assets. As mentioned above, estate taxes may be owed notwithstanding the probate process. In an estate, attorney’s fees are generally regulated by almost all Probate Courts in Ohio, and usually only skyrocket if the estate runs into difficulty, often times caused by irate individuals who cause problems through the process where there are none. Most estates are relatively cut and dry matters.

5) While there are obviously exceptions to the rule, probating an estate generally does not take an inordinate amount of time. The grieving widow unable to buy food because the estate is “tied up in probate” happens from time to time, but only rarely. Ohio has set up several types of probate procedures to make things easier. There Summary Estates which can be done in a day; No Administration Estates which can be finished in a matter of weeks at the latest, and the Full Administration Estate, the biggie, which takes about 6 months in normal circumstances, most of which is waiting for statutory time periods to run.

6) Complicated matters such as wrongful death actions, or pending class action litigation issues such as asbestos claims tend to lead to complicated probate procedures, and it is here that probably most complaints about the process occur. That being said, the procedures set up to handle these problems were done to rectify abuses to the system, and are there for your protection.

How probate relates to you either now, or after your death, varies with one’s circumstances. Many of the complicated matters usually arise from a misunderstanding as to what is subject to the probate process, and what is not. Take the time to review your situation, and consult with a professional if you feel a need.

Saturday, March 8, 2008

Sub-Prime Mortgage Crisis Explained: and It's Not What You Think

So… after 9-11 when the Islamists flew their planes into the Trade Center, the economy went into recession. The economy was already fragile, teetering on the brink for almost a year. In order to combat the recession, the Federal Reserve lowered interest rates, and then lowered them again, then lowered them again, and again, until the effective interest rate was almost “0”. In addition, the Fed also pumped a lot of money into the economy. In other words, it printed up a bunch of dollars and pushed them into the economy through the banks.

That meant that America could go on a borrowing spree, and one of the things for which Americans borrowed money was to buy homes, or houses if one was a speculator. The home builders were glad to do accommodate them, and the housing boom was on.

Not only were the home builders in an accommodative mood, so were the lenders. The banks or mortgage brokers or private mortgage companies were more than willing loan money to folks buying up the real estate. In order to promote loans, the banks offered rates that were extremely attractive based on the artificially low interest rates. There was a “gotcha,” the interest rates on these mortgages would be “adjusted” after a period of years, and those in the know knew that probably meant…up. The borrowers weren’t in the know, and rather than get a fixed rate for 30 years, they bought the adjustable rate which allowed them to add the granite counter top extra to the house package.

Not only were the banks making loans, but the artificially low interest rates created an excessive demand for housing, and the cost of the real estate went up. Using the inflated prices as a means to compensate for the usual 20% down payment….the lenders offered the loans in what turned in to “no money down” deals…like when you buy a car.

Now, in the old days, the lenders carried these loans themselves. But the old days are gone, and the lenders discovered they could make a quick buck by selling the loans to private investors in the form of bonds that were known as a “mortgage backed securities”. So they bundled up a bunch of these loans, and sold them…everywhere….collecting a fee along the way. Hurrah!!

Unfortunately, the lenders were a tad indiscriminate in what loans they put into what bundle. Each bundle contained some traditional types of mortgages of the type anyone over 50 would be familiar with….along with some of these more recent, “interesting” loans that were based on artificially low interest rates and artificially inflated housing prices. The trouble was, no one knew what loans were in what bundles. It’s kind of like buying “the surprise box” for a buck at an auction.

In addition, because the “bonds” were sold over and over again, the sellers didn’t keep good track of the paperwork. So in some instances, one party held the bonds, another collected the money on the bonds, and another party held the legal right to modify the mortgages backing the bonds, but these folks didn’t know each other.

It didn’t make any difference….the bonds were “insured” by private insurance companies which were “AAA” rated, which in turn, made the bonds “AAA” rated. Houston, we have a problem. The net worth of the insurance companies insuring the bonds might be 2 billion dollars, but the value of the bonds they were insuring was 100 billion dollars. Ouch!!

Enter a blast from the past. Remember Enron? After the collapse of the mammoth energy trading company, the accounting rules changed to keep that from ever happening again. Now, if a company doesn’t know what an asset is worth, they have to value it at “0”…zero.

Fast forward to 2007. Interest rates are going up, and so are the adjustable rate mortgages that were bundled into bonds and sold to God knows whom…and the borrowers begin to default because they can’t make the newly increased payments.

Problem 1: As these loans default, nobody knows in which bundle of sold mortgages the defaulted loans are located. So the holders of the bonds don’t know if they are good bonds, mediocre bonds, or worthless. That means the bond holders are screwed.

Problem 2: The borrowers can’t go back to the original lenders to renegotiate the loans because the lenders have sold them to whomever…again with the bundles. That means the borrower is screwed.

Problem 3: All of this puts those insurance companies insuring the bonds at risk. Remember the math: a 2 billion dollar company insuring 100 billion dollars of bonds…so much for the “AAA” rating. The insurance companies are screwed.

Problem 4: Now the holders of the bonds, mostly a lot of publicly traded banks and brokerage houses, not knowing what kind of mortgages are in the bond bundles, not being able to renegotiate the loans with the original borrowers, and now knowing the insurance companies insuring these bonds aren’t so “AAA”, don’t know what these bonds are worth.

These bonds are now required to be valued at “0”. Simply stated, the bond-holders financial statements are now decimated…and those left “holding the bonds” are in trouble. Those of you who owned Mahoning Bank shares and then Sky Bank and now Huntington Bank shares know what that means. The shareholders are screwed.

Here’s the kicker. You know those bonds that are valued at “0”? They aren’t worth “0”. They are worth a lot. The default mortgage rate in the United States is currently .8%. That is less than 1% of the outstanding mortgage loans. 99.2% of all mortgage loans are just fine. When the headlines scream mortgage defaults are up 25%, they mean from .5% to .75%. Kind of stupid, isn’t it?

Are default rates up? Yes. But at the end of the day, the sub-prime mortgage crisis is caused more by an accounting rule and legal barriers than by actual defaults.

The solution is simple. Change the accounting rule….or allow the government to form an entity which would guarantee the bonds, allowing the bond holding institutions to value the bonds at a more realistic rate. The institutions get their capital structure reinstated allowing them to loan money again…hopefully normalizing lending requirements back to the way it was in, let’s say, 1995: 20% down with a realistic appraisal. End of crisis, but in a political year…what are the chances??

PS: On March 11, the Federal Reserve began to move in this direction by allowing the banks to use as capital assets AAA mortgage backed bonds as the basis of borrowing money from the Federal Reserve. The amount of infusion is $200 billion, a step in the right direction, but there is still a long way to go. My sense is that this will be inflationary as opposed to a straight bond guarantee program which would solve the problem.

Saturday, February 23, 2008

Powers of Attorney: What Do You Assume?

Any lawyer worth his salt gets somewhat upset watching Robert Shapiro hock his documents through Anyone can draft up a document; but it isn’t the document that counts, as much as the knowledge as to how that document operates, along with attendant pitfalls, in the context in which is needed. Will the forms work? I’m not sure because I haven’t read them, but I suppose they will in a basic say. Will they tell you what you need to know about the how’s and why’s and wherefore’s? I don't think so.

One of the more disturbing documents I see listed as a pre-printed retail product is the Power of Attorney (POA). If I were to pick one document that is the single most powerful document that one can execute, it would be the Power of Attorney, aka a general Power of Attorney or a financial Power of Attorney. It gives someone else the authority to act in your place. It gives someone else the authority to sign your name on your behalf. You give somebody else complete control of your finances.

When I first started practicing, Powers of Attorney were relatively routine. I had a pre-set form that I would use myself. Push the button and generate the document. But over the past 10 years, with the passing of various privacy laws such HIPPA, various court rulings as to limitations as to how these things are used, the nationalization of our financial system with the digital age, and the tightening of state Medicaid standards, all of these have made the crafting and use of Powers of Attorney anything but routine. A mistake in drafting or a mis-assumption as to their usage can result in financial disaster to the unsuspecting user.

At the most basic level, there are several forms of POA’s. A limited POA is used for a specific purpose. These are often used to transfer automobiles or real estate when the owner lives far away from where the transaction is taking place. Then there are Health Care Powers of Attorney. These allow one person to make medical decisions for another when the second individual cannot make them for one’s self. These are important in their own right, and stand separate and apart from the type of Power of Attorney we are discussing here, although many people mistakenly assume that one can be substituted for the other. They are different animals.

A general Power of Attorney is the type most people want drafted, usually when there is a sick member of a household, in order to assist that individual with financial matters. If one is comatose in a hospital, one can’t pay the bills. For the most part, the people for whom I draft these things are good people with the best of intentions, but that is not always the case when feuding families try to use them to grab the Mom and Dad’s money, or to do “Medicaid” planning. Many people think that a Power of Attorney is absolute, right? Not really, and there is where you start to get into trouble.

Here are some basic misunderstandings about the use of a Power of Attorney:

1) The Power of Attorney does not survive the death of the Grantor. It dies with the Grantor, so it can’t be used to empty out the bank accounts or transfer the real estate after the Grantor’s death.

2) The Power of Attorney cannot be used to enrich oneself or one’s family. The Power of Attorney establishes a fiduciary relationship between the Grantor and Grantee, and it must only be used to act in the Grantor’s best interest. Giving the money to yourself is not in the Grantor’s best interest.

3) Unless properly drafted, the Power of Attorney is extinguished by the incompetence of the Grantor, which almost defeats its purpose. It must be drafted as a Durable Power of Attorney to account for that circumstance.

4) Unless properly drafted, Powers of Attorney are difficult, if not almost impossible, to use when dealing with brokerage accounts, annuities and insurance companies. Dated (old) Powers of Attorney are difficult to use even with local banks.

5) When using it for purposes of real estate transfers, the Power of Attorney must be recorded, and meet the statutory witness and notary requirements for the transfer of real estate. Recorded Powers of Attorney make an already powerful document even more powerful as it now public record. Any rescission must be recorded also.

6) Powers of Attorney are tricky when being used for Medicaid planning. That means that if the Aunt Tillie’s heir who also has a Power of Attorney tries to impoverish Aunt Tillie to qualify her for Medicaid, don’t be surprised if the state comes a’knockin’ at some point in the future.

7) While attempting to cure some of the issues listed above, a Power of Attorney may accidently become a Power of Appointment. That means that if Aunt Tillie gives Rodney her Power of Attorney with curative language to account for some of the above problems, and Rodney dies first, Aunt Tillie’s money may be implied as belonging to Rodney for estate tax purposes as relates to Rodney’s estate.

All of the above being said, proper drafting, attention to detail, and proper useage instruction can alleviate many of the problems associated with Powers of Attorney. A pre-printed form just doesn't cut it. They should only be drafted by a qualified attorney or estate planner as part of an overall estate plan or elder care plan. Yes, you can buy one through or through Office Max, but as a wise man once said, a little bit of knowledge is a dangerous thing. And as to the assumptions as to how these very powerful documents work, those assumptions can make an “ass” out of “u” and “me.”