One of the most common misconceptions that I encounter concerns the use of Powers of Attorney. It seems that the generally held belief is that an Agent can do what he wants, when he wants, without any restrictions. I frequently have clients tell me that they are the POA for mom or dad, so we don’t need to worry about doing the planning. Unfortunately for the agent, more often than not, the Power of Attorney that Dad signed right after mom’s death, while valid, severely limits the actions that the agent can take on behalf of the principal.
To illustrate, I will use a recent case. Robert D has been diagnosed with Alzheimer’s and his physician has written a letter stating that he is not competent to make financial decisions. With skilled nursing looming on the horizon, Robert’s sons, Tom and Larry, came in for a consult. They told me that Dad has a home worth $200,000, an investment account in his name alone with no beneficiaries worth $150,000, an IRA Annuity worth $225,000 that names his now-deceased spouse as the beneficiary with no contingent beneficiaries and a money market account with $75,000. His total assets are worth $650,000.
I reviewed all the relevant data and determined that even though Dad had never done any planning we could preserve nearly all his assets. I explained that Dad can transfer all his assets to a disabled child without any penalty. Larry is disabled. Because he is receiving SSD (not SSI) and he is not on Medicaid, the receipt of the assets will not affect his disability payments or his medical insurance. Their relief was palpable.
Because Dad lacks capacity, all the transfers will have to be done through the power of attorney. Tom told me there was no problem with that. Dad had executed a durable power of attorney last December and it has all the bells and whistles. I told him that I would have to review the POA. Tom emailed me a copy right from his phone. It was clear that Dad intended to give Tom and Larry extensive powers to act on his behalf, including unlimited gift making powers. The POA that Dad executed showed that he had initialed a section giving Tom and Larry power to make unlimited gifts to themselves. If properly drafted, the POA would have allowed them to take all the actions necessary to preserve Dad’s assets for the family. Even though the POA states a desire to give the agents the power, it failed to enumerate any powers. Essentially, because of a drafting error in the POA, they cannot make any substantial gifts. Without the power to make the transfers to Larry, or any transfers for that matter, the family will now have to seek appointment of an Article 81 Guardian of the Property and request asset protection planning powers.
Fortunately, it is likely that we can get everything done, but the family will have to private pay for care for several months while the Guardianship is pending and they will have to pay for the cost of petitioning to be appointed Dad’s Guardian. Given the cost of Nursing Homes and the time delay, the family will have to spend almost $100,000.
The failure to properly enumerate the Agents gifting powers in the Power of Attorney will be costly to the family. They will likely have to spend $100,000 of Dad’s hard-earned money. It all could have been avoided by working with a knowledgeable Elder Law attorney in the first instance. Don’t let this happen to your family. Be certain that your documents give you the power that you need to plan for your family’s needs with assurance.
If you have any questions about the above material or wish to speak to an attorney, please contact PB Elder Law at (716) 204-1055.