October 24, 2012

Medical Directives

Doctor’s orders
By Melvin J. Howard

Plato the Classical Greek philosopher and mathematician, student of Socrates. Mused that insofar as we are all restricted in this human body and by the conditions of life here on earth we are unable to attain true wisdom or nirvana. And we can only attain true fundamental wisdom through the pure soul and that is obtained when we are released completely from the limitations of the human body. And this is the true equalizer of all mankind "death". But what if you don’t go away gently in to that far night right away? Yet you become incapacitated mentally or physically for some reason what then? That’s when you need a directive a medical directive. An Advance Medical Directive or Advance Health Care Directive also called a Medical Power of Attorney or even sometimes it is even referred to as an Designation of Health Care Surrogate, allows you to designate a health care agent to make medical decisions for you if, for any reason, you are unable to make them for yourself. It can also be used to designate someone to serve as your guardian or conservator in the event a court determines that you have become mentally incapacitated.

If you have a trust-based estate plan, then your Last Will and Testament will only be used as a safety net to catch assets that you did not transfer into your trust prior to your death and put them in there after your death. This type of will is referred to as a Pour Over Will and contains minimal instructions since your Revocable Trust is the main document governing your estate plan.

What is a trust?

A trust is a legal relationship which is created when a person transfers property to a trustee with the understanding that the trustee will manage the property for the benefit of one or more beneficiaries. We use the term “property” here in its broadest sense; it includes both real property—such as land and buildings—and personal property—such as bank accounts, stocks and bonds, and personal effects. The person who transfers the property to the trustee is called a trustmaker (also known as a settlor, grantor, or trustor). In the typical revocable living trust scenario, the trustmaker is also the (or a) trustee and initial beneficiary of the trust. The written agreement between the trustmaker and the trustee is called the trust instrument.

What is the difference between a revocable trust and an irrevocable trust?

If the trust instrument says that the trustmaker can revoke the trust or change the trust instrument, the trust is what we call a revocable trust. The trustmaker has complete control over a revocable trust. If the trust instrument does not allow the trustmaker to change the trust instrument or revoke the trust, we have what is called an irrevocable trust. Irrevocable trusts allow trustmakers to make gifts but keep the recipients from having complete control over the gifted assets. Trustmakers must give up control over assets that they place in irrevocable trusts.

What is the difference between a living trust and a testamentary trust?

A living trust is one that you create during your lifetime by making a trust agreement with a trustee and transferring assets into the trustee’s name. A testamentary trust, on the other hand, is one that goes into effect and is funded (i.e., assets are transferred to the trustee) following your death. Thus, a revocable living trust is one that you create and fund during your lifetime, and over which you have virtually complete control.

What is probate?

Probate is the court proceeding to transfer a dead person’s assets to the people who are supposed to get them. I have had personal experience in this scenario it is simple in concept, but humbling in practice. Probate can easily take a year or more to complete, and the attorneys’ fees and other costs associated with probate could easily eat up 5% of a decedent’s gross estate. (“Decedent” is lawyer talk for someone who has assumed room temperature i.e., a “dead person.”) If a decedent owned assets located in more than one state or country, it may be necessary to have a probate in each jurisdiction in which assets are located. If one probate is bad, you can bet that more than one probate is worse. In almost every case, probate is an awfully good thing to avoid.

How does a trust help me avoid probate?

Once assets are transferred to the trustee, the trustmaker no longer holds legal title to them—even if the trustmaker and the trustee are the same person. Thus, if the trustmaker dies, the trust continues, and the successor trustee (who is named in the trust instrument) takes over administering the trust. Since a trust can’t die the same way a person can, the trust assets will not be subject to probate upon the trustmaker’s death. Title to the trust assets simply remains in the trust, and the trust instrument tells the successor trustee (i.e., whoever the trust instrument identifies as next in line to serve as trustee) exactly what to do with them.

What is a conservatorship and can it be avoided?

Perhaps even more important than avoiding probate, a revocable living trust can avoid a conservatorship proceeding (sometimes called a “living probate”) in the event the trustmaker becomes incapacitated. Ordinarily, if a person becomes incompetent, a court must appoint a conservator to handle the person’s assets on his or her behalf. The conservator must then account to the court every year or so, and the whole conservatorship process ends up being costly and time consuming and almost always worth avoiding. On the other hand, if the incompetent person’s assets had been held in trust, the successor trustee could have stepped in—without court action—and picked up administration of the trust where the trustmaker left off. Conservatorships can also be avoided by ways of powers of attorney.

What is a power of attorney?

A power of attorney is a document in which give someone else the legal authority to act on your behalf. The agent named in your power of attorney is not a trustee, and your agent will not be held to as high a legal standard as would your trust if the agent were to make a mistake or do something you didn’t like.

Are there different kinds of powers of attorney?

Powers of attorney may be durable or non-durable, springing or evergreen, and general or limited. A durable power of attorney which continues to be effective even if the person who signed it (called the principal) becomes incapacitated. A non-durable power of attorney is revoked upon the principal’s incapacity. All powers of attorney are revoked upon the principal’s death. A springing power of attorney becomes effective upon the occurrence of some even on a date after it is signed. A typical trigger for a springing power of attorney becoming effective is the incapacity of the principal. An evergreen power of attorney, on the other hand, is effective from the moment it is signed until the principal either dies or revokes the power of attorney. A general power of attorney grants the agent broad authority to do just about whatever the principal could do with his or her property, whereas a limited power of attorney grants authority to deal with a particular transaction or subject matter.

What is the estate tax?

The estate tax is a tax on your failure to spend your last nickel at the same time as you exhale your last breath. The tax is imposed on the value of everything you own when you die (including life insurance proceeds and retirement plan death benefits, along with your house and everything else you would expect to be taxed). If you are a U.S. resident, the law gives you an exclusion from the Federal estate tax that enables you to shelter a certain amount of assets from the tax. This shelter, called the “applicable exclusion amount” (formerly known as the “unified credit,” if you are familiar with that terminology).

What are the chances that Congress will repeal the estate tax once and for all?

It is anybody’s guess what will happen to the estate tax, but one thing is for sure. Congress is not done tinkering with the estate tax law. Five years from now, the law will probably be very different from the way it is now, and “the experts” differ over whether the estate tax will ever actually be repealed. Many believe that we will end up with a relatively large applicable exclusion (perhaps $3,500,000; perhaps more), but that the estate tax is here to stay. All we know for sure is that we need to stay tuned for change in this area.

If I have a will, my family won’t have to deal with probate, right?

Having a will does not cause your estate to avoid probate. It may make probate simpler and less expensive, but it does not avoid the necessity of getting a court order for someone to have authority to administer your estate and carry out the terms of your will.

If I have a revocable living trust, do I still need a will?

The trustee of a revocable living trust administers only those assets that were transferred to the trustee. If you own something outside your trust when you die, the only way to get it into your trust after you’re gone (which may be very important if some of your beneficiaries are very young or unable to handle assets themselves), is to have a pourover will. A pourover will simply says, “I meant to put everything into my trust while I was alive; if I missed something, put it in there after I’m gone.” It is much better for you and your family to have all of your things in your trust during your lifetime, but since that doesn’t always happen, a pourover will can be a crucial safety net.

It is often difficult for individuals to think about the care and treatment they want in the event they are incapable of making their own health care decisions. However, completing an Advance Health Care Directive is important for all adults as they may unexpectedly be in a position where they cannot speak for themselves and run their  business and personal affairs, such as in an accident or in cases of severe illness.

October 04, 2012

A Reformation Of American Capitalism

Capitalism With Social Values
By Melvin J. Howard

The Great Depression was basically the same in the United States as other capitalist countries.  High unemployment, lower gross domestic product, and some kind of a government response to the depression were evident in all the capitalist countries. However, the United States took a different approach from the rest of the world powers in their recovery methods during the depression. Herbert Hoover was the president from 1928-1932 and had the first opportunity to publicly combat the depression.  His philosophy was simple when speaking of the American system. “It differs fundamentally from all others in the world.  It is the American system. It is just as definite and positive a political and social system as has ever been developed on earth.  It is founded upon the conception that self-government can be preserved only by decentralization of Government in the State and by fixing local responsibility; but further from this, it is founded upon the social conception that only through ordered liberty, freedom and equal opportunity to the individual will the initiative and enterprise drive the march of progress. This is not what the American people wanted to hear at this time a self sufficient individualism” speech when many families could not even afford to put food on the table.  

Hoover created the Federal Farm Board to try and improve farm prices. This agency would sometimes pay farmers to not grow crops to try and raise demand. As soon as the prices started to show some rebound, farmers would plant crops again against the federal government’s wishes.  The prices would never correct without production and open foreign markets. He closed foreign markets for agricultural products.  In the 1920’s, markets in Europe for grain were tremendous, but because of the tariffs on American goods, many countries could not afford them and turned to other suppliers.

By then the recession had grown into a full-blown depression. Much worse, the depression’s was just getting started. Now it was Franklin D. Roosevelt (FDR’s) turn he was president from 1932 until his death in 1945.                         

He was the next American president that had an opportunity to deal with the depression. “Restoration calls, however, not for changes in ethics alone. This nation asks for action and action now….It can be helped by national planning for and supervision of all forms of transportation and of communications and other utilities which have a definitely public character. FDR and his advisers believed that Hoover had the right idea, but they wanted to do more than just follow Hoover’s lead.  FDR’s first New Deal had two very controversial pieces that tried to stimulate the American economy.  The first one was the National Industrial Recovery Act of 1933.  To try and gather an understanding of this act, here is an excerpt.

To provide for the general welfare by promoting the organization of industry for the purpose of cooperative action among trade groups, to induce and maintain united action of labor and management under adequate governmental sanctions and supervision, and to eliminate unfair competitive markets. This act has some definite socialist overtones.  FDR wanted the federal government to be very involved in the public’s lives.  The Agricultural Adjustment Act was the other controversial piece that basically attempted to collectivize the farming industry to control prices.  This was modeled after Hoover’s FFB, but it had more controls does this sound familiar? 

Both leaders realized that something needed to be done to help the American people.  That has been proven.  Hoover attempted to stimulate the economy with tariffs and FDR attempted to with price and wage controls through the first New Deal.  While evaluating the recovery programs of the two leaders, it is important to keep the American people’s needs at the top of the list.  With that being said, neither leader kept the basic necessities of the American people in mind when trying to fix the depression.  Food, water, shelter, and heat are things that people need to survive.  Fields of crops were being plowed under while people were starving to try and fix low prices.  

History shows that a capitalist economy needs time to crawl out of a depression.  The political divisions like the one we are witnessing now prolonged the depression in the United States until WWII when twelve million men were sent overseas.  Most of the world countries climbed out of the depression sooner than the United States, so, in essence, political economic formulas prolonged the depression in the United States. 

Too much wealth landed in the hands of too few people. An article by Ross L. Finney offered a dire prediction in early 1924: "Unless we shift our weight Western civilization will enjoy an illusive prosperity and greatness for a time, but will then stagger, stumble and eventually collapse" (January 24, 1924).

Some 19 months before the crash of the market, editorials scrutinized the problem of unemployment with a growing sense of urgency. In the face of this "orgy of speculation," editors argued, religion must "protest a social or industrial order in which men wallow in sudden wealth which they have not created while their fellows by the million face want" .The speculation of the capitalist market allowed for an accumulation of "undigested wealth" and the separation of means from ends Wall Street had divorced wealth from activities that led to employment. In addition, machines had invaded the workplace and massively displaced human labor.

This antagonism toward capitalism surfaced regularly after October 1929. Given its socialist sensibilities, there were many people that interpreted the crash of the stock market as an opportunity to begin a new form of capitalisms. People could no longer ignore the growing and devastating problem of unemployment. This awareness opened the door to social solutions most Americans would have rejected as unacceptable only a few years before. Editorials supported legislation designed to account for the unemployed, to establish public works projects to enable their return to work, to provide for newly unemployed through a national unemployment insurance program, and to create a national bureau of unemployment to stay on top of the problem.

The crash of the market also offered Americans the opportunity to reflect on a new understanding of the problem of greed. Americans, said some editorials, have been too quick to condemn racketeering, "the poor boy’s easy road to quick wealth," while ignoring ways "the son of a comfortable home seeks to make his pile and make it quickly". In addition, the country’s obsession with its "standard of living" had to be balanced against the needs of the rest of the world. Standing pat on the traditions under which the present absurd inequities have grown up” would not solve problems like these, concluded. Editors grew impatient with President Hoover’s unwillingness to use federal means to address the social crisis. Hoover urged private charities, and the organizations of local communities where hunger existed, to step up to meet the need. Many people judged the president’s response entirely inadequate. His fear of the dangers associated with the federal "dole," argued editorials, ignored the fact that poverty emerged more from the defects of the system than from the "personal shortcomings of the sufferers.

The depth of the depression demanded a federal response, one that would establish a "permanent deposit of advanced social legislation." Hoover, to the growing dismay of editors, ruled such legislation out of bounds. "How bad must things become," asked one editorial, "before the nation is ready" to enact legislation?  Hoover’s local-community approach would "prove to be not only tragically inefficient but scandalously inequitable". Roosevelt’s landslide victory was a sign that Hoover got it wrong in some people’s eyes. Once elected, and once the extent of his program to deal with the depression became evident, Roosevelt quickly gained enthusiastic endorsement. With 16 million people out of work, editors declared Roosevelt’s "readiness to experiment with new policies his greatest asset and the nation’s greatest ground of hope". As Roosevelt exercised emergency power to deal with the banking crisis, revise the relationship between American currency and gold, and establish the Tennessee Valley Authority, editors hailed the arrival of "a new United States.

Editors interpreted the administration’s orchestration of the national recovery act as a commitment to graft socialistic principles into the American capitalist system.
This philosophy of "socialized capitalism" encouraged the idea that "business exists for the community" instead of "the principle that a business exists for itself, that is, for the profits it can make for its owners. But editorials simultaneously noted that the National Recovery Administration (NRA) depended too much on voluntary compliance. Ultimately, Roosevelt’s new system set no restrictions upon profits. And here it necessarily faltered. "Can human nature which has been so long conditioned by the stimuli of capitalism," discipline itself while still subject to the same stimuli, to the point of curtailing its greed for profits when profits are to be had?"

In addition to anxiety about the overwhelming influence of the profit motive, many also worried about whether the power of labor organizations could develop rapidly enough to counter the autonomous industrial associations. Small businesses also tended to suffer under self-regulation provisions that favored the efficiency of the mass-producing abilities of larger businesses. This weakness surfaced more clearly as time passed. Editors also knew that the extension to the South of NRA codes mandating minimum wages would likely cause displacement of black workers without creating an effective remedy.

At a time when the vast majority of clergy in America disapproved of Roosevelt’s New Deal reforms. By 1937, many aspects of Roosevelt’s New Deal had successfully taken root. Labor gained strength. Legislative checks against the worst abuses of big business seemed securely in place. Social Security provided unemployment and pension insurance. Welfare programs eased the suffering of the poor. Roosevelt’s domestic policy had produced a reformation of American capitalism.