A health care power of attorney, also called a health care proxy or health care surrogate, is a medical power of attorney that allows a person, called a principal, to appoint another person, called an agent, to access his or her health care records and make medical decisions on his or her behalf.

Parents generally have this authority over their children while they are underage. But once the student reaches age 18, parents can no longer review their medical records or make important medical decisions.

There are many reasons why parents and students would want the parents to be able make decisions on their behalf. If, for example, the student is severely injured or becomes mentally incapacitated, the parent should have the right to step into the student’s shoes for healthcare purposes.  A health care power of attorney gives the parent this ability.

Many universities recommend health care powers of attorney for college students.   And the ranking member of the Senate Health Committee, New York State Senator Kemp Hannon, recently made a public statement encouraging parents to obtain a health care power of attorney before their student left for college.

As parents, the last thing we want to think about is the possibility of our children ending up in the hospital while away at school, but we need to always be prepared for the worst.  As a concerned parent whose child is in the hospital, the last thing you want to hear from the hospital staff is that you cannot receive any information on your child’s status or make any decisions. However, without a health care proxy, that’s exactly what will happen.

Completing a health care power of attorney will provide parents and students with the assurance that federal law (HIPPA) privacy rights will not prevent the parent from accessing medical information if a medical emergency arises while the child is in college. If the child will be attending college in another state, it is good practice to complete a health care power of attorney in both the home state and the state where the child attends college.  The power of attorney should be provided to the college health care center.

The terms per stirpes and per capita come up often in estate planning documents.  They are as confusing to clients as they were to me as a first-year law student.  But they are so deeply embedded in the legal vocabulary that they don’t appear to be going anywhere. And, as terms of art, they do convey a bunch of meaning in a few syllables. So let’s take a shot at explaining them.

Both per stirpes and per capita are used to describe the situation where a person leaves property to someone who predeceases them.  Say, for example, that Joel makes a Will leaving his assets to his five children.  One of the children, Sam, predeceases him leaving five children of his own.  Who gets Sam’s share of Joel’s assets?  The answer depends on whether the distribution is made per stirpes or per capita.

Per Capita Distribution

Per capita is a Latin phrase meaning “by head.” In a pure per capita distribution, you simple count the number of heads. Each of them receives an equal amount.

In the above example, assuming Joel’s will left his estate to his children and grandchildren per capita, the estate would be divided into 9 shares.  Each of Sam’s five children would get one share.  The other four shares would be divided among Joel’s four surviving children.

If you think about this, this is not what most people would want to happen.  The one-fifth that Sam would have received if he had survived gets transformed into a 5/9 interest in the estate.  Over 50 percent of the estate is distributed to Sam’s descendants, to the detriment of Joel’s surviving children.

Another option would be for Joel to leave the property “per capita to such of my children as survive me.”  But this also has a problem: the entire estate would be distributed in equal quarters to Joel’s surviving children.  Sam’s children get nothing.

A final option would be to make the distribution “per capita at each generation.” Under this approach, the assets would be divided at the first generation, with one share allocated to each surviving or predeceased child.  Each surviving child would get one share.  The remaining shares would be distributed per capita among the children of any of the predeceased child.

Per Stirpes Distribution

Per stirpes is a Latin phrase meaning “by root” or “by branch.” Per stirpes distribution is much more common than per capita distribution.  It more closely matches  how most people would want their property distributed if a child predeceases them.  In per stirpes distribution, the descendants of any deceased child inherit the share that the child would have taken if the child had survived.  This is known as a right of representation.

Going back to our example, in a per stirpes distribution, the property would be divided into five equal shares at Joe’s death.  Each of Joel’s four surviving children would be entitled one share.  The one-fifth share that would have gone to Sam is instead distributed among his descendants in equal shares.  Because he has five children, each of them will inherit a 1/25 interest in Joel’s estate.  Collectively, this is the same amount that Sam would have inherited had he survived.

It appears that the end of 2010 will also be the end of an era of no estate taxes.  On January 1, 2011, the estate tax rate is set to jump from zero to 55 percent on estates in excess of $1 million.  I’ve been watching this issue closely this year, hoping that Congress would act before January 1.  That’s still a possibility, but becoming less likely as political sparring over the Bush income tax cuts keeps the focus off of the reinstatement of the estate tax.

The Obama administration favors allowing the Bush income tax cuts to expire for high wage earners but extending the tax cuts for middle-income taxpayers; the Republican leaders insist that the tax cuts be preserved for all income brackets.  Senate Republicans were able to filibuster a Democrat-proposed middle class tax cut this weekend.  But as of this morning, Sen. Mitch McConnell (R-KY), the Republican leader in the U.S. Senate, is optimistic that a deal will be reached by year end to extend the Bush-era tax cuts for all income levels.

Meanwhile, the estate tax debate has been sidelined.  But it is still an important issue for Americans, according to a recent Gallup poll.  When the issue is discussed, most Congressmen take one of the following three positions:

1. $3.5 Million Exemption; 45 Percent Top Tax Rate.  The Responsible Estate Tax Act, introduced by Senator Bernie Sanders (I-Vt.) back in June, is perhaps the best representation of this view.  This would put us back in about the same place that we were in 2009 (although Sanders’ Act does have a few changes, such as a billionaire surtax). Many Democrats, including Majority Leader Harry Reid, favor a $3.5 million exemption and a 45 percent rate.
2. $5 Million Exemption; 35 Percent Top Tax Rate.  Senators Blanch Lincoln (D-Ark.) and Jon Kyl (R-Arz.) want to cap the top tax rate at 35 percent after a $5 million exemption.  The Lincoln-Kyl bill allows the estates of taxpayers who die in 2010 to choose between current law and their proposal.  Many Republicans, including Leader Mitch McConnell, and some conservative Democrats favor the Lincoln-Kyl proposal.
3. Permanent Repeal.  There has been a recent resurgence in the push for estate tax repeal.  Some Republicans are still pushing for permanent repeal, and anti-estate-tax group the American Family Business Institute has heralded a pro-repeal majority in Congress.

So the current estate tax situation is both promising and frustrating; promising because no one is happy with the $1 million exemption that will apply in 2011, but frustrating because Congress has not been able to agree on an alternative.

How much will an institutional trustee cost?  I usually get this question when talking with a client about whether to choose an institutional trustee (as opposed to naming a family member or trusted friend as trustee).  And while I usually stress that price isn’t the only factor, it is perhaps the biggest in the client’s mind.

A recent study by the Trust Advisor Blog looked at both directed trust and investment management services for the third quarter of 2010.  The study compared fees charged by a handful of the larger trust companies, including Advisory Trust, Bryn Mawr Trust, and Edward Jones, to name a few.

The fees for Investment Management Services ranged from 0.90% to 1.33% for the first $1 million and 0.55% to 1.0% for the next $1 million.  In the Directed Trust Services category, fees range from 0.40%  to 1.33% for the first $1 million and 0.30% to 1.00% for the next $1 million.  Minimum annual fees ranged from $1,000 to $20,000 and tended to track the required minimum balances.

Not surprisingly, the study found that pricing is not the only factor differentiating trust companies. Other relevant factors include:

• Critical Mass (Assets Under Administration)
• Technology
• Overlay Systems
• High Touch Services
• Price

According to the study, since smaller, independent trust companies with fewer assets under management are increasing market share, assets under administration is not as big of a factor as it once was.  And directed trusts—in which the trust company and the advisors share the management and fees of the trust—are becoming increasingly popular way to strengthen the bond between the advisor and the trust company.

Edward Jones Trust Company was a newcomer to the study.  Since Edwards Jones has about 11,000 of its own representatives, the trust management function is usually closely tied to the advisory role.  The article notes that the close advisor-trustee connection usually causes the trust business of brokerage-affiliated trust firms like Edward Jones to stay with the brokers/representatives.

Note: If your trust company would like to be included in the next study, you can take the “Trust Fee Survey” here.