Sometimes aging loved ones start out in one state and then move to a different state to retire. They carefully do their estate planning where they live. That may leave trusts or other investments subject to different laws than they ever expected. This is an illustration of a real matter involving such a move and the legal morass it created.
What Happened
The adult child of a very wealthy man became the beneficiary of a trust his father created. The trust “resided” in the state where Dad had created his business and left his fortune. The trust remained in State #1, which had no state income tax. Son had moved to State #2, which did have state income tax. The trust stayed in State #1 over many years. Son did his estate plan in his state of residence and named his financially inexperienced wife (IW) as his appointed agent with Power of Attorney. She gradually managed some things for her husband, though he was the sophisticated businessman who knew more than she did about the trust. She had to learn what to do.
The Changed Circumstances
Son was in his 70s when he began to notice problems with his memory. He had retired from his business and was enjoying a very comfortable lifestyle with IW, living on generous distributions from the trust. It was managed by a corporate trustee in State #1. He rarely asked questions and did not monitor their actions. As long as the funds flowed in and he and IW could do as they wished, he never scrutinized their management.
But sadly, Son developed dementia in his mid 70s. He could no longer manage his financial affairs. He had appointed IW, whom he totally trusted, to take over for him should he become incapacitated. She stepped into the role, depending on the advice of friends and others. To her shock, she realized that the corporate trustee was doing some very questionable things and her husband had never noticed. Now it was up to her to act on his behalf.
Legal Advice
IW sought advice from the estate planning attorney who understood the trust from State #1. She believed that all the estate documents, including those created years prior by their first attorney, were fine. And under State #2’s laws, they were fine. IW had to begin to exercise her rights as her husband’s duly appointed person with Power of Attorney. The document required that Son be declared incapacitated by two doctors before she could act officially. This is called a “springing” Power of Attorney. Two doctors promptly said Son was incapacitated. Now she wanted to change trustees. She simply did not like what looked to her like secrecy over the corporate trustees fees and refusal to give her documents that spelled out what they could charge the trust for managing it, and other things. The trust empowered her to change trustees anytime for any reason or no reason. She found an attorney in State #1, not someone she knew, but was referred to her, and he agreed to terminate the corporate trustee for her.
The Wife’s Shocking Discovery
IW found new trustees and a new financial manager for the trust and retained them in anticipation of transferring all the substantial assets of the trust to them. But when her new attorney in State #1 attempted to terminate the shady-looking corporate trustee, he failed. He took the matter to court. The corporate trustee, eager to hold onto power and its very lucrative management fees, fought IW viciously. They even used Son’s trust assets to attack his own wife in her efforts to terminate them. The basis? The court told IW’s lawyer that her Power of Attorney document was not valid in State #1, though perfectly valid where she and Son lived, in State #2.
Next Steps For Wife
IW had to go to court in her state, State #2, and ask the judge there to change (”reform”) the Power of Attorney. The State #2 judge agreed. Now she has a document without the “springing” clause in it. But it is still uncertain whether the court in State #1 will accept it, as “reformed”. It will be frightening, frustrating, and expensive to find out.
The Consequences
After being denied in her first efforts to terminate the corporate trustee, she must go back to that court with new information and try again. After the unfortunate decision from the court in State #1, her totally incapacitated husband now has no one who can legally act on his behalf to oversee or even question any actions by the corporate trustee. IW knows this is wrong but she has to keep paying lawyers to try to right that wrong.
The Takeaways
This case offers a very important lesson on the document everyone needs, the Power of Attorney. Normally, one state will readily accept the properly drafted document from any other state. In this case, the court in State#1 chose to ignore that normal way of doing things and it refused to accept the Power of Attorney from State #2. If you/ your aging parents have a trust, property, or other local investment in any state that is subject to laws that differ from those where you live, beware! Keep these things in mind:
- Investigate whether your Power of Attorney (POA), as it is now, will be valid in any other state where you have a trust or other investment. It would create a nightmare such as IW is going through if a different state declines to accept it.
- If there is a problem with the POA, there is a way to fix it before it is ever needed. A POA can be changed at any time as long as the one making the appointment is competent. Get rid of “springing” clauses, the source of the problem IW had.
- If the person making the POA appointment is no longer competent, the POA can be “reformed” by a court order with the presentation of proper evidence. Seek advice from an experienced probate and estate litigator in the state where your trust or other asset is located. Find out about any differences in the laws of your state and the other state, in case of any issue with a POA you have.
Most folks who have been responsible in doing thorough estate planning and have a POA in place would never guess that their appointed person would get deprived of authority by a random decision by a judge in another state. But it really happened. It will cost many thousands of dollars to fix the mess IW is in. Let this serve as a warning to anyone to plans to retire in a different place where the POA could be needed in your aging parents (or your) future.