By Staci Yamashita-Iida, Esq.
[dropcap]A[/dropcap] few months ago, I wrote an article titled, “What Happens If …” which was a compilation of some of the most commonly asked questions posed by my clients.
As promised, I kept cataloguing the questions that get asked on a daily basis and am including them in this second installment of “What Happens If … ”
What happens if … I name my two kids as Co-Powers of Attorney and they fight?
Oftentimes, especially in Japanese and Japanese American families, parents are very concerned about making sure things are fair and that there are no notions of favoritism. Accordingly, when it comes time to choose powers of attorney, successor trustees, executors, etc., they choose multiple children to act together.
In an ideal world, the kids would be on the same page and agree on every decision. Unfortunately, however, that is not always the case.
Let’s say you get into a bad car accident and become incapacitated. At the hospital, the doctor asks to speak to the medical Power of Attorney (“POA”). Your son, Sam, and daughter, Delia, produce the durable power of attorney for healthcare that you filled out last year, which appoints the two of them as co-POAs. Your prognosis isn’t good, but the doctor says there is a high-risk procedure that may save your life. Sam is onboard, but Delia thinks it’s too dangerous. What happens if they disagree?
The answer is, “It depends.” Sometimes, the document has language that accounts for situations like these. For example, you can elect to have a “tie-breaker” if a conflict arises, or they can solve the matter through arbitration.
If the document lacks specific language, however, then the court might have to get involved. In most states, the probate court will hear the matter and decide whether to change the POA, remove a POA’s authority or mediate the dispute until the co-POAs can reach an agreement.
If you are concerned about your children fighting, then you might want to consider including provisions that address what happens in the event that they disagree. Alternately, you might want to choose varying POAs for different situations. If Sam is a CPA and Delia is a nurse, then you can select Sam as your financial POA and Delia as your medical POA. Whatever the case might be, it would definitely be beneficial to consider these circumstances when drafting or updating your Powers of Attorney.
What happens if … I give a beneficiary a specific gift in my trust but I don’t have the asset at the time of my death?
Let’s say that you created your revocable living trust 20 years ago. At that time, you lived in a two-story home in Huntington Beach, Calif., which you left to your only granddaughter in your trust. Over the years, you realized the home was too big and decided to downsize. You sold the Huntington Beach home and instead purchased an apartment in Gardena. Upon your passing, what happens to that gift if it’s already gone?
In legal terms, the gift is considered to be “adeemed.” If the Huntington Beach home is not in your estate at the time of your death, then it obviously cannot be given to your granddaughter. The gift fails to exist.
At this point, my clients usually ask me, “So, does that mean I have to update my trust?” And again, the answer is, “It depends.”
If you want the new Gardena apartment to go to your granddaughter, then you should amend your trust to reflect this gift — i.e., “My Gardena home shall go to my granddaughter.” If, however, you intend the new Gardena property to go to the residual beneficiaries of the trust, then a modification is not necessary. As long as the asset is funded into your trust, it will automatically go to those residual beneficiaries.
What happens if … I own a partial interest of a property with my sibling?
Oftentimes, my clients will own a percentage of a property with their siblings because they inherited a home from their parents or purchased a rental property as an investment. So, when it comes time to creating a trust, they usually ask what they’re supposed to do with that interest.
Let’s say you own 50 percent of a rental property in Hawaii, and your brother owns the other 50 percent. One common misconception is the belief that you cannot put your interest into a trust, but that is not true — you can absolutely fund your 50 percent into your trust. The benefit of doing so is that you have the freedom to choose who will inherit your share of property (e.g., your kids). If you want your brother to inherit your half, then you would designate the property as a specific gift to him.
If you transfer your 50 percent interest into your trust, then it would probably be best for your sibling to do the same. That way, his interest would bypass probate and get passed along to his beneficiaries in case he passes.
Questions will always arise when you create your estate plan. As I mentioned, people tend to have the same ones, so please do not hesitate in asking them — you’ll never regret putting your mind at ease. As I collect more frequently asked questions, a third installment of “What Happens If … ” will emerge.
Stay tuned for more!
Staci Yamashita-Iida, Esq. is an estate planning attorney at Elder Law Services of California. She can be contacted at (310) 348-2995 or email@example.com. The opinions expressed in this article are the author’s own and do not necessarily reflect the view of the Pacific Citizen or JACL. The information presented does not constitute legal or tax advice and should not be treated as such.