The Power of Attorney: The Document You Cannot Live Without

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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If you’d like to learn more about me and my law practice you can go here or, si hablas español, here.

Diving In: The Last Will and Testament

Picture it: My office within the last couple of years

I cannot remember exactly when, but I had a consult where an adult son accompanied his mother and with full confidence and pride, told me how he had 1) drafted his mother’s Last Will and Testament, 2) signed it as a witness and 3) was also the Executor. He then showed it to me.

I sat there in complete silence.

I was also appalled.

Do you know why that situation was so problematic?

I am about to tell you by explaining what makes a “Will.” Just a caveat, there are a lot of layers when discussing “Wills.”

Lawyers have written treatises on the subject. Treatises are REALLY big books that take deep dives into different corners of a legal subject and are a reference guide for attorneys.

You will find no treatise here. Remember, this is an elemental series- and a foundation. YOU build on that.

You think you know…but a lot of you don’t

The most well-known estate planning document, by far, is the Last Will and Testament, more commonly known as “a Will.” I think many people have heard sad and downright horrible stories within and outside of their families, about the chaos that can ensue in this document’s absence.

The lack of a Will (and I will be very frank, even its existence) can bring out negative traits in an otherwise “good person,” and can create a monster from a person who already had ill intentions or frayed family ties. Either way, having a Will is far better than not having one.

Therefore, it is the document a potential client will come to me specifically requesting— and nothing else.

No estate planning or elder law attorney worth their law license would ever just draft a will for a person who has never done any type of planning. In my opinion, to do that is malpractice.

I will put this in a different context: If a person is in an accident and both of their arms and legs, all their limbs, were fractured, a physician would cast all four limbs- not just one. All limbs need protection so that bones can fuse back together properly, and the person can resume full mobility.

It is the same with attorneys. It is our responsibility to tell clients what they need, not just go along with that they think they need. More often, they do not know the importance of a document and the long-term consequences of having it versus not.

The Series will go into more detail about this, but I just wanted that point to be clear from the outset.

“Who’s Who” in a Will

Even with most people requesting a Will, many still do not understand the document and its actual function.

We will return to my non-hypothetical from the beginning as a clear example.

·      A Last Will and Testament is a testamentary document. Testamentary means it is a document that creates or transfers an interest or a right to an asset or property. NO ONE, other than the testator and an attorney, should look at this document before the Testator’s death.

  • It should be reviewed and/or revised as necessary. It cannot be utilized in any way prior to the Testator’s death. It becomes important at death.

·      The ONE person who has authority to execute a “Will” is the Testator or Testate(“Testatrix” if you want to be proper and reference a female).

·      When the Testator dies, they become the Decedent.

·      What the Decedent leaves behind in, or outside of, the Will is referred to as an Estate.

At some point after the Decedent’s death, the Will must be submitted to the local Supreme Court (in New York City) in the county where the person died for Probate.

In simple terms, and for this article, it is a judicial proceeding or process that gives a person called an Executor (more on the latter below) the power to collect all the Estate’s assets and distribute them according to the Decedent’s wishes.

The Executor was nominated and named in the Decedent’s Will.

·      Who drafts, or writes, a Will? An Attorney. More specifically, an attorney with experience. Even more explicitly, an Estate Planning and/or Elder Law Attorney who has built a practice around this area of law.

  • This is not snobbery. If a cardiologist cannot diagnose neurological conditions, then an Intellectual Property lawyer whose practice focuses almost exclusively in that area, does not have the experience or knowledge base to handle these types of matters.
  • Your son or daughter, even if they are an attorney, is not an acceptable draftsman. If they are your niece or nephew, then a BIG maybe. In my example, he was not an attorney.
  •  A Staples do it yourself “Will Kit” is not acceptable. Sorry Staples, I like buying my office supplies from you, but I would never go to you for my estate planning needs.
  • You cannot write your own Will, and your high education level or superb writing ability is irrelevant. Will drafting is more technical than creative.

·      A Testator leaves specific assets to the person or persons they name, and this class of people are generally known as Beneficiaries, or Designated Beneficiaries. Some people will use the word “heirs.”

  • A beneficiary can be a spouse, child or family member, a friend, an organization or institution.
  • In my example the son who was the Will draftsman was a beneficiary of his mother’s estate.
  • A beneficiary cannot draft a Will from which they expect to receive an inheritance. So, if your attorney nephew is a beneficiary he cannot draft it. If your favorite attorney is a beneficiary, they cannot draft it either.

NOTE: Residuary Beneficiary is a beneficiary who is not left a specific bequest (gift/asset) in the Will. A very simple example of a specific bequest followed by a Residuary Clause is:

I leave (or give/devise/bequeath- they all mean the same thing) my primary residence, located at 123 Mockingbird Lane, New York, NY 10023 to my wife, Jane Smith.

I leave the rest, remainder and residue of my estate, both real and personal, of whatever nature and wherever situated, real or personal property, tangible or intangible, to my only daughter Joanie Smith.”

All those words are meant to cover our butts, I mean, bases. Our aim is to be thorough after all.  

·      Every Last Will and Testament execution (signing) must be witnessed. The Witnesses,two to three of them, should be non-family members or, if family members, those who are not beneficiaries listed in the Will.

  • The purpose of the witnesses is to maintain the integrity of the process. In other words, 1) attest to the testator’s sound mind- their orientation to self, time and place and 2) ensure others that the testator was not unduly influenced, under duress or pressure to sign the document when executed.
  • The witnesses will sign a Self-Proving Affidavit attesting to what I just wrote above.

·      Who carries out the Testator’s wishes? The Executor.

  • The Executor can also be a beneficiary of the Will, but it is not necessary.
  • They can be a family member or a friend.
  • They can be a trusted professional, like an attorney, a financial advisor or accountant.
  • Most importantly, they need to trustworthy people.  Executors have a very important job and what is known as a “fiduciary responsibility” or duty to the beneficiaries. They must be accountable to the beneficiaries for all the assets in the estate, answer all questions, and ensure all assets are given to the named beneficiaries, in the manner intended and that the Estate closes properly.
  • If an Executor does not do their job or if they steal from the Estate, you can have them removed.

There should ALWAYS be an alternate Executor named in the Will, in the event of the Executor’s death, illness, misconduct or deciding to step down from or discontinue the role.

What can go “in” a Will?

Almost everything.

Property: “real property” like a primary residence and other residential or commercial properties you may own.

Property: “personal property” like the objects within your home, your favorite watch, your grandmother’s china set, or your mother’s engagement ring or sentimental objects with great personal value but no great monetary one.

This category includes vehicles for the road, a vessel for the water or, why can’t it—an aircraft for flight in the skies.

Intellectual Property: music compositions or master recordings, original artwork, designs, manuscripts, your written work product or ideas etc. Anything you physically create or anything you create or own in the digital space or “cloud.” And this even includes access to your online accounts.

NOTE: There are more sophisticated techniques to protect property, but remember this Series is elemental. A Will is better than NO Will for almost any property. It’s protection. It is stated wishes, not guesswork.

I will briefly mention property that is non-probate and that can pass outside of a Court proceeding and, for some, AS LONG AS A (INSTITUTIONAL) BENEFICIARY FORM OR DESIGNATION has been completed:

·      Retirement accounts

·      Pension (plan)

·      Life Insurance

·      Property held by two people, a “joint tenancy with right of survivorship” or as “tenants by the entirety”

·      Property held in the name of a revocable or irrevocable Trust

·      Joint Savings Account (Checking accounts are not included here)

·      A bank account “held in Trust for” another person

This is your “primer” on the Last Will and Testament.

I bet you are wondering what happened to the adult son and his mother I mentioned at the beginning of this article? I told him that his mother’s bequests to him in the Last Will and Testament would not survive for the mere fact that he “drafted” a Will where he is an Executor and Beneficiary. If there were other irregularities in the Will drafting (which there were) and in the signing ceremony (which there likely were), the Will could be declared a nullity.

I never heard back from him.

You can’t help everyone, unfortunately.

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If you’d like to learn more about me and my law practice you can go here or, si hablas español, here.