In my last article I spoke about the Health Care Proxy, a document that governs all health care and medical decisions. This week I will be addressing the Power of Attorney, the most powerful (and abused) document in anyone’s set of planning documents.
I will try to explain this legal document in a succinct yet clear manner. This is all elemental so remember, no deep dives.
The Case of Jane and John Smith
Last week I provided the hypothetical of Jane and John Smith. I am going to revisit their story and provide different details, to illustrate the importance and power of this document.
Jane worked as an accountant and left her job at a small firm to focus on a full-time screenwriting career. At the time of the accident, she had been writing full time for a little over a year and a half. John worked as an assistant principal at a Manhattan public elementary school.
They lived in a renovated three-story brownstone in Bushwick (Brooklyn). John purchased the brownstone as a then fixer upper well before meeting Jane. Two years prior to the accident, he took out a second mortgage in the amount of $450,000 to finance the major renovations with the hopes of renting out two of the three apartments.
John also owned an apartment in Forest Hills, Queens he inherited mortgage free from his grandmother. He had been renting out the apartment for approximately $2000 per month and used those funds to assist in paying the $3000 mortgage on his brownstone.
Jane and John held a joint savings account amounting to $100,000 at the time of his accident. He also held some investment accounts, jointly with Jane, worth about $300,000.
A year after the accident, financial problems began to surface. Jane’s work as a screenwriter was inconsistent, therefore so was the income. However, being a screenwriter allowed her to spend more time with John at his long- term rehabilitation facility.
Jane has been paying $13,500 per month for the facility with the money in John’s investment accounts. She knows this money will not last and she will need to solicit long term care Medicaid for John sooner rather than later.
She has maxed out their joint savings account. She has been able to pay the mortgage but, at times, with difficulty. As much as it pained her to think it, she believes she needs to sell the brownstone as it was too much to manage.
She wants to keep the Forest Hills apartment as an income producing property.
John never executed any Advance Directives, and this included a Power of Attorney. At this point, Jane’s hands are tied with respect to properties she does not own.
(As I mentioned in my previous article, there is a (costly) solution. It will be addressed next week).
Like a Health Care Proxy, the “POA” (the abbreviated term utilized by attorneys) is an Advance Directive. It is a document that is only valid when the person who executed it, also referred to as a Principal, is alive and incapacitated. The person who carries out the document’s intent is, again, the Agent.
A POA should have two Agents that either act separately or together.
There are many authorities that can be conferred in a POA and, often, one person cannot do it all or may not have the aptitude for certain tasks. It does make sense to allow both Agents to act separately. When agents act together, this means they must agree on a course of action. This could lead to conflict but, to be fair, so can Agents who act separately.
Rule of thumb: Think responsibly and cautiously about who you select to act as your Agents. They do not need to be your spouse, child or close family member. If they happen to be and are appropriate, then so be it.
There should also be named successor Agents in the event your original Agent(s) are unable to serve for any reason.
The criteria for incapacity are the same as defined for the Health Care Proxy. The person can no longer make decisions, because they are
– unable to verbally, or through other means, communicate and/or;
– cannot comprehend what is being told to them;
– it is usually a neurocognitive issue, and/or;
– developmental or intellectual disability, and/or;
– at times combined with a psychiatric illness.
And yes, some people will execute a Power of Attorney to permit others to act on their behalf even when they possess their cognitive faculties but present with limited to no mobility.
The Subjects Under a Power of Attorney
What powers does a Power of Attorney confer on the Principal’s named Agent, the person with the authority to act on their behalf?
Few to many. Narrow to broad.
It depends on the Principal’s level of comfort with ceding control as well as their expressed wishes. However, an effective Power of Attorney needs to cover a lot of bases and the one you download off the internet is not going to pass muster.
The subjects addressed in your boilerplate POA:
– Claims and Litigation;
– Banking transactions;
– Bond, share and commodity transactions;
– Real Estate transactions;
– Benefits from governmental programs or civil or military service;
– Health care billing and payment;
– Tax matters;
– Estate transactions;
– Business operating transactions;
– Retirement benefits;
– Insurance transactions;
– Personal and family maintenance;
– Chattel and goods transactions; and
– “All other matters”
On its face, the above subjects appear to be comprehensive. They cover every facet of your life outside of health care and medical decisions. But do they really protect you as the Principal?
From the perspective of an experienced Elder Law or Trusts and Estates attorney, the above provides insufficient to minimal protection, in that the language is too generic and open to any interpretation—usually of the narrow kind. It is also missing other subject matters that are important to an aging population and those with special needs.
It is simply not tailored to the Principal, his/her life and future needs.
A Minute on the Banks and Financial Institutions
Let’s talk about the banks and financial institutions. They are not known for their POA “friendliness.” They will often ask their customers to complete an institutional POA, even though this is not necessary-or is it?
If you look at a standard/template POA it simply states, “banking transactions.” What exactly does that mean? Whatever the person looking at the document determines it to be—and it will often not work in the Agent’s favor.
I can say the same thing for every single category listed. Additionally, the “all other matters” language is akin to a catch all provision in a contract -and not a good one.
The Statutory Gifts Rider
Another mistake people make when it pertains to a POA? The absence of a Statutory Gifts Rider, which for this article’s purpose is defined as an accompanying document that permits the Agent(s) to make gifts of money in excess of $500. The sole gifting provision in the POA only allows gifting in an amount up to and including $500. The additional gifting authority found in the Rider is vital in the area of Medicaid Planning, a future series topic.
An experienced Elder Law attorney will further flesh out the above subjects when drafting a POA and the Statutory Gifts Rider. Furthermore, they will also include and expand the following topics; this is definitely a general and non-exhaustive list:
– Trusts (creating, funding, modifying, termination, etc.)
– Medicaid Planning
– HIPPA (access to confidential medical records)
– Beneficiary Designations (modifications, etc.)
– Powers of Appointment
– Statutory Elections
– Domicile and Residence (changing the Principal’s home setting as well geographic location, etc.)
– Estate Transactions (receipt, waivers, consents and releases, etc.)
– Real Estate transactions (sales, leasing, transfers, etc.)
– Employment of other professionals (to assist the Agents in handling the Principal’s affairs)
– Reimbursement issues for the Health Care Agent
– Enforcement proceedings against banks or financial institutions
– And even the naming of the Agent as a Guardian, should the question of formal guardianship arise during the period of incapacity
To close, I will return to my hypothetical. Can you see some of the problems Jane Smith is facing in the absence of the POA?
At this point in time, she has no authority to 1. Sell the brownstone, much less collect the proceeds from the sale, 2. Transfer the Forest Hills apartment to her name, 3. Do any type of preliminary Medicaid planning (or spend down) for her husband, 4. Establish new bank or financial accounts for her husband, 5. Establish a Trust for her husband’s benefit, and/or 6. Move her husband to a different facility if she wanted to.
A properly drafted POA would have made most of, if not all, the hurdles non-existent.
This has been my longest article in the Series (thus far) and even so, I could still write more. All the topics I have and will discuss are important, but Advance Directives are unique, in that they are literally living documents.
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