![Text Box: Do you know someone heading off to college this fall?
By: Melisa M. W. Mysliwiec
It is important for students to have durable powers of attorney in place before they head off to college. In general, anyone over the age of 18 should have durable powers of attorney. A power of attorney allows an individual to authorize another individual (called an agent) to act in his or her place. Any competent adult may act as an agent for another individual; but it is usually recommended that at least one alternate agent be named in case an individual’s first choice is not willing or able to act.
In general, there are two types of durable powers of attorney, one dealing with business and financial matters, and the other dealing with health care matters.
The durable power of attorney dealing with business and financial matters will be referred to as the “financial durable power of attorney” throughout the remainder of this article. The execution of this document eliminates the necessity of a probate court proceeding to have a conservator appointed for an individual who has become disabled and allows the individual to personally choose the person who will act as his or her agent. Depending on the individual’s wishes, the agent’s authority either begins immediately and continues when the individual becomes disabled or becomes effective only upon the individual’s disability. Financial durable powers of attorney may be revoked or amended by the individual at any time.
Reasons why students should have a financial durable power of attorney:
It allows an agent, such as one’s parents, to handle banking matters for the student while they are away from home;
It allows an agent to sign legal documents on behalf of the student while they are away from home;
In the unfortunate event of an unexpected disability, it allows an agent to handle all of the student’s business and financial affairs while they are unable to do so.
The other type of durable power of attorney deals with health care matters; this will be referred to as the “health care durable power of attorney” throughout the remainder of this article. This document permits an individual to name one or more agents (called patient advocates) to make care, custody, and medical and/or mental health decisions for the individual when he or she can no longer make those decisions, and also permits an individual to authorize the withholding or withdrawal of life support systems, and authorize or refuse organ donation. The designated agent must sign an acceptance of the designation before he or she may act as an individual’s patient advocate. Further, a patient advocate’s authority under a health care durable power of attorney begins only when two physicians certify that the individual is unable to make health care decisions for him or herself and only extends to decisions the individual could have exercised on his or her own behalf. It is important to know that the patient advocate’s authority is suspended when the individual regains his or her ability to participate in medical or mental health treatment decisions; and this suspension lasts as long as the individual is able to participate in his or her own medical or mental health treatment decisions. Finally, an individual my revoke his or her health care durable power of attorney at any time, unless they have waived their right to revoke for a period of up to 30 days.
Reasons why a college student should have a health care durable power of attorney:
If for any reason, the individual is unable to make medical or mental health care treatment decisions for him or herself, the student’s designated patient advocate can do so according to the student’s predetermined wishes.
If you know someone heading off to college this fall, please educate them on the importance of having durable powers of attorney in place before they leave. If you have questions or would like to speak to someone about preparing durable powers of attorney, please contact me at (517) 706-5806.
Mortgage Foreclosures:
Do You Know Your Rights?
By: Scott A. Breen
It is now safe to say that the housing bubble has popped. With the difficult economic environment, it is not a surprise that many people have found themselves in foreclosure. Not only are some homeowners unable to pay the monthly mortgage, but they often are unable to sell their house to cover the debt. To make matters worse, property values are falling and it is quite common for appraisals to come in lower than the original purchase price for the house.
When a debtor defaults on his loan obligations, the lender can generally foreclose its mortgage without the need to file a lawsuit. The lender will normally notify the debtor by letter that a default has been committed and that the lender intends to foreclose the mortgage if payment is not made by a specific date. If the debtor fails to pay the overdue amount by that time, Michigan law provides that the lender must publish a foreclosure notice in a local newspaper, once each week for four consecutive weeks. The notice gives the time and place that a public sale of the property will occur. The public sale is almost always conducted by a sheriff and held at the circuit court in the county where the property is located. The sale is usually scheduled for the week following the last date of publication. More often than not, the lender will bid at the sale and purchase the property for some or all of the amount owed by the debtor. This is often called a “credit bid” and, therefore, does not require the lender to pay any money at the sheriff’s sale (the lender simply offsets the debt by the amount of the credit bid).
After the sale, the sheriff delivers a deed to the purchaser (usually the lender). However, the debtor retains the right to repurchase the property (called a “redemption” right) for a period of one to twelve months after the sale. The period of time given to repurchase the property depends on a number of factors, including the amount of money the debtor has paid during the term of the loan. After the applicable redemption period expires, the lender (or any other purchaser at the sale) may evict all occupants from the property.
It is very important for debtors to understand that a foreclosure does not automatically relieve them from all monetary liability. If the amount bid at the sale is less than what is owed on the loan, there will be a deficiency amount that is still owed by the debtor equal to the loan balance minus the amount bid at the sale. The lender can then file a lawsuit to obtain a money judgment in the amount of this deficiency. The lender usually attempts to collect this money by a wage or bank garnishment. This scenario is very common in the current economic environment because the values of property are often less than the amount owed to the lender.
There are a number of options to consider when you are having difficulty making your monthly mortgage payments. Most importantly, it is never wise to stick your head in the sand. It is almost always to your advantage to attempt to work with your lender rather than simply ignoring the default/foreclosure notices. Lenders generally view foreclosures as the last option and are willing to negotiate with debtors. First, lenders may be willing to enter into a loan modification agreement that restructures how much a debtor has to pay each month. Second, the lender may be willing to discharge all loan obligations if the debtor can find a buyer for the property to repay part of the debt. This is called a “short sale.” Third, lenders may allow a debtor to voluntarily deed the property to them and discharge some or all of the debt. This is called a “deed-in-lieu of foreclosure.” It is important to note that there are variations to each of these options that are beyond the scope of this article.
Virtually all of the above principles apply to both residential and commercial properties. In addition, many of the defaulted loans are the result of investment properties that have not sold. Although foreclosure alternatives may vary depending on the type of property at issue, a debtor should always attempt to negotiate with the lender. In this regard, it may also be helpful to obtain the advice of a real estate lawyer to help you through the complexities. Quite often, there is a scenario that will benefit both the lender and the debtor. Even though housing bubble has popped, hopefully it will not burst your financial future.
What Every Medicaid Recipient Should Know About
Michigan’s Estate Recovery Law
By: Michelyn E. Pasteur and Melisa M.W. Mysliewiec
In the fall of 2007, when Michigan legislators were in the midst of heated negotiations over our state’s budget imbalance, the Federal government renewed its threat to cut federal funds used to support Michigan’s Medicaid program unless Michigan towed the line and adopted an estate recovery plan. Michigan complied by the passage of Public Act 74 of 2007, effective September 30, 2007, becoming the last State in the union to come on board with this federal statutory requirement.
Although over eight months have passed since enactment, no policy or rules have yet been published to implement the law. We can however glean from the statutory language the shape that Michigan’s program will take once it is up and running. Following are highlights that outline the most significant parts of this new law.
WHO- Michigan’s estate recovery will apply to individuals who begin receiving Medicaid long term care services after September 30, 2007. However, no program to recover assets will start until the federal government approves the plan for implementation. As of this writing, the plan has not yet been submitted for approval.
WHAT- The object of Michigan’s estate recovery program is to attach assets that are part of the individual’s probate estate. This is a very important limitation, because if there is no probate estate, there is nothing to recover against.
WHEN – The state will not take action to lien potential probate assets before the Medicaid recipient passes away.
HOW- The state will become a Creditor in the individual’s probate estate. However, it will stand behind a number of other creditors with higher priority including:
Costs and expenses of estate administration;
Reasonable funeral and burial expenses;
Homestead allowance;
Family allowance; and
Exempt property.
This means that if there is a surviving spouse, the spouse could subtract $53,000 from available probate assets [this is the current amount allowed by statute for homestead allowance, family allowance and exempt property], plus the administrative expenses of the estate and the funeral costs, before the Michigan Medicaid program will recover anything.
WHY- The State and Federal governments are looking for funds to help pay back the cost of long term care funded through the Medicaid program, but they want to wait until after the Medicaid recipient passes away to attach his/her assets. Although this objective may sound like a good idea to some, the reality is that states who have implemented estate recovery programs have a net recovery of about one half of one percent of what was spent on Medicaid. In other words, after the states account for the cost of implementing the program, the recovery is de minimus.
EXCEPTIONS - There are some exceptions from recovery written into the law. For example, the law prohibits the state from recovering assets from the home of a Medicaid recipient if a spouse, child under 21, disabled or blind child, caretaker relative or sibling is residing in the home.
AVOIDING ESTATE RECOVERY - The simplest way to avoid estate recovery is to avoid having a probate estate. This can be accomplished in a number of ways including:
Titling assets as joint with rights to the survivor;
Transferring assets to the spouse during the Medicaid recipient’s life;
Transferring real estate at death using a ladybird deed;
Using POD (“Payable on Death”) or TOD (“Transfer of Death”) designations on bank accounts, US savings bonds and similar assets.
Completing beneficiary forms for life insurance, mutual funds, IRA’s, 401-K funds, etc.
Since Michigan’s law is restricted to recovering only probate assets, if you keep your assets from passing through probate, then you will avoid estate recovery.
If you would like a private consultation regarding estate recovery and how it might effect you or your family, please contact Micki Pasteur at (517) 706-5810 or Melisa Mysliwiec at (517) 706-5806.
Are Your Funds on Deposit Insured?
By Mark R. Pasquali
As you may be aware, the financial markets have been experiencing some turmoil lately, underscored by the failure of IndyMac, the 3rd largest bank that has ever failed. The news stories showing lines of bank customers nervously waiting to withdraw funds has caused confusion and anxiety among many bank customers regarding the safety of their funds in financial institutions. We want our clients to know the protections that exist to protect their funds on deposit, and the extent of this protection.
FDIC VS NCUA: WHO INSURES MY FUNDS ON DEPOSIT?
The FDIC - Federal Deposit Insurance Corporation – is an independent agency of the US Government that protects depositors at banks and savings institutions against the loss of their deposits if the institution fails. The NCUA – National Credit Union Association – is also an independent agency of the US Government that regulates, charters, and insures the nation’s federal credit unions in the event of failure. The NCUA also insures state-chartered credit unions that desire and qualify for federal insurance. Insurance coverage limits of the FDIC and NCUA in the event a bank, savings association, or credit union failure are, for the most part, identical. Both the FDIC and NCUA are backed by the full faith and credit of the United States Government. This article will therefore refer to banks, savings institutions, and credit unions collectively as “banks”.
WHAT FUNDS DO THE FDIC AND NCUA PROTECT AND WHAT FUNDS ARE UNPROTECTED?
At insured institutions, FDIC and NCUA deposit insurance extends to checking and savings accounts, money market deposit accounts, and time deposits such as certificates of deposit (CD’s). This coverage applies to the balance of the account up to the limit, including principal and accrued interest through the date of the insured’s institution’s closing. Insurance coverage also applies to certain retirement accounts, including IRA’s, Roth IRA’s, Keogh plan accounts, SEP IRA’s, SIMPLE IRA’s, and others.
Money invested in stocks, bonds, mutual funds, life insurance policies, annuities, and municipal securities are not insured, even if you purchased these investments through an insured bank. U.S. Treasury bills, bonds, and notes are not insured investments, but are backed by the full faith and credit of the United States Government.
TO WHAT EXTENT ARE MY FUNDS PROTECTED?
The extent of insurance protection available varies depending on the ownership status of the account in question. However, as a general rule, individual accounts are protected up to $100,000, while individual retirement accounts at the same insured bank are added together and insured up to $250,000. Individual accounts include accounts held in one person’s name alone, accounts established for one person by an agent, and accounts held in the name of a business that is a sole proprietorship (for example “DBA account”).
Joint accounts are accounts held by two or more people (for example married couple “John and Mary Smith”). Each co-owner’s share is added together and the total is insured up to $100,000 per joint account holder.
Revocable trust accounts also have separate insurance coverage. Informal revocable trusts, called “payable-on-death” (POD) or “Totten trust” accounts are created by signing an agreement indicating the deposits are payable to one or more beneficiaries upon the owner’s death. Formal revocable trusts, often known as “living” or “family” trusts, are created for estate planning, become irrevocable upon the owner’s death, and the account title must indicate that the account is held pursuant to a trust relationship. There is an important distinction between formal and informal trust accounts: informal trust accounts must specifically identify the beneficiaries by name on the record of the account to qualify for additional insurance coverage, whereas in a formal trust account, the terms of the trust itself will determine the extent of insurance coverage. In both formal and informal trust accounts, the beneficiaries must be “qualifying” to extend coverage. This means the beneficiaries must be the owner’s spouse, child, grandchild, parent, or sibling. In-laws, cousins, nieces and nephews, friends and organizations (including charities) do not qualify. These accounts are insured up to $100,000 per owner for each qualifying beneficiary. All deposits held in both informal and formal trust accounts are added together and insurance coverage is applied to the combined total.
Deposits owned by a corporation, partnership, or unincorporated association are also insured up to $100,000, and this insurance coverage is separate from the personal accounts of the entity’s stockholders, partners, or members (keep in mind sole proprietorships are not included in this category, ie “DBA accounts”, but are added to the owner’s other single accounts).
THE BASICS
Deposits in separate branches or separate accounts of an insured bank are not separately insured. Therefore, to determine coverage, you must add together accounts with the same ownership status at the same bank to determine the total insurance coverage. Also, an Internet bank that is part of a brick and mortar bank is not considered to be a separate bank, even if the name differs. Rather, these deposits are added together to determine insurance coverage. However, deposits in one insured bank are insured separately from deposits in another insured bank.
If you have more than $100,000 in deposits in a single bank, it may be possible to structure your accounts in a way that protects more than $100,000 depending on the ownership status of the account. Examples would be single accounts, joint accounts, payable on death accounts, certain retirement accounts, revocable trust accounts, and corporate accounts.
EXAMPLES
A and B, husband and wife, have individual accounts that each contain $100,000, and additionally hold a joint account together containing $200,000. Each individual account is insured up to $100,000, and the separate interests of A and B in the joint account are each insured up to $100,000 separately from the individual accounts. The total resulting insurance coverage is $400,000 (A’s individual account ($100,000) + B’s individual account ($100,000) + A’s interest in the joint account ($100,000) + B’s interest in the joint account ($100,000) = $400,000).
Suppose in the example above, A and B, husband and wife, instead held the entire $400,000 in a joint account. In that case, the total insurance coverage would be $100,000 each for A and B’s separate interest in the joint account for a total insurance coverage of $200,000, leaving the other $200,000 uninsured.
A and B, husband and wife, open an account titled, “A and B Living Trust”. Under the trust agreement, their three children, X, Y, and Z, are given equal shares of A and B’s estate upon death. X, Y, and Z are “qualifying beneficiaries” (defined earlier), because they are the children of A and B. A will be entitled to $100,000 of coverage each for X, Y, and Z, and B will also be entitled to $100,000 of coverage each for X, Y, and Z. The total resulting insurance coverage on this account is $600,000.
Note that in the preceding example, if A and B instead had titled the account “payable-on-death” to X, Y, and Z, their children, and their names appeared on the account record, this would also qualify for $600,000 of coverage.
Okay, pay attention! A and B are husband and wife. A has $150,000 in an individual account and B has $50,000 in an individual account. A and B also hold $230,000 in a joint account. B has $100,000 in an account “payable-on-death” to her nephew, N, who is listed on the account record. A has $300,000 in an IRA, and B has $200,000 in an IRA. A and B have $400,000 in a family trust account titled, “A and B family trust”. The trust agreement leaves all assets to their son and daughter, S and D, in equal shares. A is the majority shareholder of Acme Corporation, which has an account titled “Acme Corporation” holding $100,000. Assume all accounts are held at the same bank.
Individual accounts: A has $150,000 in an individual account which exceeds the $100,000 insurance limit, leaving that $50,000 uninsured. B holds $50,000 in an individual account, under the $100,000 insurance limit, and this account is fully insured.
Joint Account: joint accounts are entitled to $100,000 of insurance protection for each joint account holder. The result is that A and B each are entitled to $100,000 of protection, leaving $30,000 uninsured. The $30,000 would be attributed $15,000 to A and $15,000 to B and added to the balance of any of their respective individual accounts, insured in the aggregate up to $100,000.
POD account: B has an account titled, “payable-on-death” to her nephew, N, holding $100,000. However, N is not a “qualifying beneficiary” because he is not the spouse, parent, sibling, child, or grandchild of B. Therefore, the $100,000 is not separately insured from B’s individual account at that bank. The result is that the $100,000 will be added to the balance of B’s individual account and insured to $100,000 in the aggregate. Since B already holds $50,000 in an individual account, the $100,000 in the POD account is added to that balance for a total of $150,000, of which $100,000 is insured, leaving $50,000 uninsured.
Retirement accounts: A has $300,000 in an IRA, but the maximum insured amount is $250,000, leaving $50,000 uninsured. A has $200,000 in an IRA, which falls under the insured limit of $250,000 and is fully insured.
Family Trust Account: The family trust account is properly titled, and S and D, as children of A and B, are qualifying beneficiaries. Therefore, A is insured for $100,000 each for both of the qualifying beneficiaries, as is B. The result is $400,000 of insurance coverage, leaving the entire account insured in the event of bank failure.
Corporate Account: A has $100,000 in an account held in the name of a corporation. These funds are entitled to separate protection, in addition to the other accounts, and therefore are fully insured.
Result:
Uninsured Amounts:
A: $65,000 over the limit in A’s individual account (remember the $15,000 that was uninsured in the joint account is added to A’s individual account, already holding $150,000, so the total of $165,000 can only be insured up to the $100,000 limit ), $50,000 over the limit in the IRA account for a total of $115,000.
B: $65,000 over the limit in B’s individual account (remember the $100,000 POD account didn’t name a qualifying beneficiary so that $100,000 is added to her individual account, already holding $50,000, plus the $15,000 uninsured excess attributable to B in the joint account, totaling $65,000) for a total of $65,000.
TOTAL UNINSURED: $180,000
Insured Amounts:
A: $100,000 insured in individual accounts, $100,000 insured of A’s share of the joint account with B, $250,000 insured in the IRA, $200,000 insured for A’s share of the family trust account, and $100,000 insured in the account held by Acme Corporation for a total of $750,000.
B: $100,000 insured in individual accounts, $100,000 insured of B’s share of the joint account with A, $200,000 insured in the IRA, and $200,000 insured for B’s share in the family trust account for a total of $600,000
TOTAL INSURED: $1,350,000
It is clear that insurance coverage for funds on deposit can vary greatly depending on how particular accounts are structured. Creating additional accounts or simple adjustments to existing accounts can greatly extend the insurance coverage available if done properly.
Please take careful note that there are additional regulations and requirements regarding insurance coverage beyond the scope of this article. Although FDIC and NCUA coverage are nearly identical, there are distinctions. Therefore it is important to consult with a financial advisor, CPA, or your bank or credit union to clarify whether your accounts comply with all requirements and regulations to ensure your accounts are insured to the maximum amount covered.](image1117.gif)
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Welcome to our latest issue of News and Notes. We enjoy taking this opportunity to let you know about important legal issues as well activities of our firm members. Do you have issues you would like to see us address? Please let us know by contacting Kathie Lindberg at (517) 796-5791 or kathie.lindberg@fosterzack.com. |