If you have read my prior columns you know that there are three essential documents a person for the bare minimum estate plan: a will, a power of attorney and a health care proxy.
The will dictates who should manage your estate when you die (the executor) and who should inherit your estate (your beneficiaries). The will also covers less important issues such as waiving the requirement of bond, authorizing the executor to sell real estate, etc.
Wills are not generally useful when the elder is alive but incapable or handling his or her finances. This appears to be happening with greater frequency. It may be attributable to longer life spans and changing demographics. (Many children live out of the area, leaving the elder on his/her own.) If an elder becomes incapable of managing his/her financial affairs, a will is not going to do them any good.
If an elder becomes incapable of managing his or her finances and has not appointed a surrogate under power of attorney, or as trustee of a trust, and has not placed a trusted family member’s name on his/her bank accounts, then the family members are not going to be granted access by the bank to the elder’s funds. The family will be left with the option of filing for guardianship in probate court. This is a very expensive proposition, which involves an unbelievable amount of red tape.
In Hampshire County, for example, the probate court will appoint an independent person to see whether the elder needs a guardian. That person is paid by the elder’s estate. The guardian has to file accounts with the court. There are filing fees and (usually) lawyer fees. On these accounts, the court will again appoint that independent person who will be paid by the elder’s estate. If the guardian wants to sell real estate or engage in Medicaid planning (asset protection), the guardian has to petition the court and, again, that independent advocate (a lawyer) is appointed by the court and paid for by the elder’s estate.
All of these burdensome delays and expenses can be avoided by appointing a trusted family member as your power of attorney. Some might argue that the court oversight is warranted. If you want court oversight, don’t do a power of attorney and leave the issue to chance. If you want to avoid the court delays and fees, do a power of attorney.
Although power of attorney forms can be found on the Internet or at Staples, I still don’t think you should sign a POA without consulting with an elder law attorney. There are several points, which you need to address in the POA: Should the POA have authority to make gifts of your funds? When does it take effect? What if the POA dies before the elder? Can the POA sell real estate? Can they get paid for their work? Can there be joint POAs?
In many instances, I think a power of attorney is equally, if not more, important than a will. You should have a POA. At the same time it would be a shame to have you create a POA and have it turn out to be defective. You wouldn’t prepare your own will would you? It’s too dangerous.
The same holds true for a power of attorney and estate planning.
Power of Attorney 2
There are three essential documents in an estate plan: a Will, a Power of Attorney (POA) and a Health Care Proxy. The Will dictates who should manage your estate at your death (the Personal Representative) and who should inherit your estate (your beneficiaries). Wills are not useful when the elder is alive but incapable or handling his or her finances. (Similarly, a POA is of no use post death of the elder).
If an elder becomes incapable of managing his or her finances and has not appointed a surrogate under power of attorney, or as trustee of a trust, nor has placed a trusted family member's name on his/her bank accounts, then no one will be granted access by the bank to the eider's funds. The family will be left with the option of filing for Conservatorship in probate court. This is an expensive proposition that involves an unbelievable amount of red tape.
In Hampshire County, for example, the probate court will appoint an independent advocate/attorney to see whether the elder needs a Conservator and whether the nominated Conservator is appropriate. The advocate is paid by the eider's estate. The Conservator must file annual accounts and the court will reappoint that independent attorney/auditor. If the Conservator wants to sell real estate or engage in asset protection Medicaid planning, the Conservator must petition the court for special authority and yet again, the advocate is appointed by the court.
All of these burdensome delays and expenses can be avoided by appointing a trusted family member as your power of attorney. Some might argue that the court oversight is warranted. If you want court oversight, don't do a power of attorney and leave the issue to go government bureaucracy. If you want to avoid the court delays, fees and intrusion into your personal financial affairs then sign a power of attorney.
Although power of attorney forms can be found on the Internet or at Staples, you should not sign one without consulting an elder law attorney. There are several points, which you need to address in the POA: Should the POA have authority to make gifts to achieve asset protection goals in case of nursing home placement? Including gifts of real estate? What if the POA dies before the elder? Can they get paid for their work? Can there be joint POAs? Should it take effect immediately or only when your doctor says you can't manage your finances? Can it establish a Trust for you? Can the agent change beneficiaries on annuities or life insurance? Are there particular financial institutions that require a certain type of POA?
In many instances, a power of attorney is more important than a Will. It would be a shame to have a POA and have it turn out to be defective. You wouldn't prepare your own Will would you? I don't try to fix my home heating system. What you pay now for estate planning save you money and headaches down the road for those who try to help you in your time of need.
Power of Attorney 3
Powers of Attorney (financial delegation of authority to be used while you are alive) are often more important than a Will. Always name an alternate on your Will, Health Care Proxy and Power of Attorney. Some brokerage firms require their own Power of Attorney, for example Merrill Lynch. Probate-avoiding Revocable Trusts are much less relevant now since the simplification of the Probate process. Revocable Trusts don't protect assets if nursing home placement occurs. Irrevocable Trusts might, but they are more complicated, expensive and subject to Medicaid (aka MassHealth) scrutiny years down the road when seeking eligibility.
The way to protect your assets from nursing home costs is to a) die b) transfer assets c) guarantee your kids will care for you or d) buy long term care insurance. Long term care I often view as inheritance insurance so the spouse or kids' inheritance isn't consumed by long term care costs.
$14,000 allowable gifts under IRS and federal inheritance laws have absolutely nothing to do with Medicaid rules. Just because the IRS allows it doesn't mean Medicaid does. Moreover, these IRS gift allowances to minimize inheritance taxes are only relevant if you are over the federal taxable threshold which is now over $5 million. How many of you have that much?
If you intend to deed your house to your kids to avoid probate and try to protect it from nursing home costs, always retain a life estate. Don't transfer to more than 3 children. Too many people on one deed. I had one client who wanted to put 8 kids on a deed! If you do transfer to the kids make sure they have their own legal papers in order since they are now "partners" with you.
Prenuptial agreements are not recognized by Medicaid. If one spouse is rich and other is poor and in a nursing home, the rich spouse's assets must be used for care. Medicaid asset protection and eligibility rules are different for community services, rest homes and nursing homes.
Medicaid rarely pays for assisted living facilities. If you have a disabled child, establish a Trust for him or her. Formal, written, Caregiver Agreements between an elder and his/her children are becoming more common now that Medicaid gifting prohibitions (the 5 year look back) make it so hard for elders to protect their savings for their kids. A veteran can't bank on going to Holyoke Soldier's home. Many veterans or veteran's family prefer there because it is only 8% of the cost of a private nursing home. Do your family a favor and get your estate plan in order. Accept the fact that we are all going to die yet we don't know when.