The financial durable power of attorney and the marital property agreement are often forgotten pieces of estate planning. Frequently overlooked, both of these documents are necessary to a good plan.
The financial power of attorney is simply a legal document that gives someone authority to conduct financial transactions for you if you are unable to do so. The powers granted under the financial power of attorney can include simple transactions, such as paying your cell phone bill, to more complicated transactions, such as running a business.
An often mistaken belief is that a spouse will automatically have the power to deal with the finances of the other. Meet a hypothetical couple named Dick and Jane, who probably have all of their assets titled jointly, including their house. If Dick is involved in an accident and is left incompetent, can Jane act on his behalf? Without a financial durable power of attorney, Jane can still access joint accounts that they own together; however, Jane is unable to transact any acts involving Dick’s IRA, 401K, pensions, life insurance- even things as simple as a cable bill if Jane is not on the account! Jane would have to be named guardian by a court to make any changes to or withdrawals from these accounts, or even to receive information!
Therefore, it is important to have a properly drafted financial durable power of attorney to take care of your affairs if anything happens to you. This is true even if your spouse is listed on all of your accounts, and even truer if you are unmarried! With a durable financial power of attorney, the acting spouse (or other agent) will have full access to all of the family accounts and will avoid court involvement in the middle of a crisis.
Similarly, the marital property agreement is also frequently overlooked. Wisconsin is a marital property state. Generally, the Marital Property Act presumes that almost all property is owned equally between the spouses. However, certain assets are individual, such as inheritances. Under the Marital Property Act, Dick’s paycheck would be considered marital property, as would their house. However, Jane’s inheritance from her grandmother is Jane’s individual property. Dick has no automatic right to share in the inheritance. This seems simple enough; however, the Marital Property Act can get confusing. If any marital property is mixed in with individual property, all of the individual property can become marital property. If Jane mistakenly deposits Dick’s paycheck into the account where she holds her inheritance, the whole account may very well be considered marital property. This could really be a problem if Dick and Jane ever divorce.
How does all of this pertain to an estate plan? We use the marital property agreement to classify assets of spouses. By defining all of the assets as marital property, we are able to equalize the marital assets for estate tax planning, or to make certain that a spouse receives more favorable tax treatment after death. If a couple is on their second marriage with children from previous marriages, the marital property agreement can allow each spouse to leave individual property to their own children at death.
Dick and Jane’s story, while hypothetical, can and does happen. Ensure these important financial documents are part of your estate plan so a court isn’t in control of your family’s financial future.
Epiphany Law Estate Planning Team