By Craig Andreoli, Esq., Elder Law and Estate Planning Attorney
What is a Power of Attorney?
A Power of Attorney is a document that authorizes the “agent” to represent or act in various legal matters on behalf of the “principal.” The agent, previously called an attorney-in-fact, but after a recent change in the Power of Attorney laws, is now simply called “agent”, is essentially an alter ego of the principal. The agent is authorized to act on behalf of the principal with respect to any and all matters listed in the Power of Attorney, with the exception of those acts which, by their nature, by public policy, or by contract require personal performance. The agent also has a fiduciary relationship with the principal, meaning he/she must act in the best interest of the principal. Failure to do so could result in criminal or civil liability against the agent.
You should seriously consider having a properly worded Power of Attorney drafted on your behalf or making sure the one you already have is properly worded. Why? Well, for two primary reasons:
1) To Preserve Your Income
“Community” Medicaid (a/k/a Home Care Medicaid) includes payment for personal care aides to come to your home; adult day care; and other similar services provided through the new Managed Long Term Care Program. Community Medicaid is different from “Chronic Care” Medicaid (a/k/a Nursing Home Medicaid). A typical planning technique with Community Medicaid involves “pooled trusts”. If you are successful in obtaining Community Medicaid benefits and you earn $825.00 or more in monthly income, then you must contribute the “overage” (that amount over $825.00 in income per month) to Medicaid to receive the benefits. Income includes your Social Security, pension, traditional IRA distributions, and dividend payments. In other words, the Medicaid recipient is left with only $825.00 on which to live. Fortunately, Medicaid allows payment of the overage to certain charities that run pooled trusts, instead of payment of the overage directly to Medicaid. In turn, for a nominal fee, the pooled trust company will use the deposited overage to pay for the Medicaid recipient’s living expenses, such as food, rent, real estate taxes, clothing, and utilities. This arrangement allows the Medicaid recipient to have the income needed to pay typical living expenses and the ability to stay in his/her home.
The recurring problem we are seeing however, is that by the time people come into our office seeking help with a Community Medicaid application and with the establishment of a pooled trust, the Medicaid applicant is either already incompetent and/or the Medicaid applicant’s Power of Attorney form does not have the proper language in it granting the agent the powers to establish trusts, such as pooled trusts. If the Medicaid applicant is already incompetent, he/she cannot sign a new Power of Attorney with the proper language set forth within it and, thus, the Medicaid applicant would not be able to establish a pooled trust. This could make it difficult or even impossible for the Community Medicaid recipient to have enough money to pay his/her living expenses and be able to stay in his/her home.
2) To Ensure That Your Agent Has Unlimited Gifting Powers
Older Power of Attorney forms usually cap gifting in some manner. We typically see Power of Attorney forms with the following type of language: “An agent can gift to children or grandchildren $10,000.00 per year or the amount of the federal gift tax exclusion in the year that the Power of Attorney was executed.” In other words, the gifting powers in the older Power of Attorney forms usually cap the amount allowed to be gifted and restrict such gifting to blood relatives. A newer “Medicaid-focused” Power of Attorney, on the other hand, would allow gifting to third parties and even trusts, and the gifting would be unlimited. Using this “gifting” power, an agent could contribute the Medicaid recipient's excess income to a pooled trust, as explained above, to preserve that excess income for the purpose of paying the Medicaid recipient’s living expenses. Additionally, a properly worded gifting provision would also allow gifting of larger assets, such as a home or large sums of money, to an Irrevocable Trust, which could help preserve those large assets from Medicaid recovery laws. Once again, none of this can be done without proper gifting provisions in the Power of Attorney form. Notably, if a Medicaid applicant is seeking Chronic Care benefits, gifts over $1,500.00 must be made 5 years prior to the application so as not to affect eligibility, but if he/she is only seeking Community benefits, gifts in any amount can be made in the month prior to the application without affecting eligibility. It should also be noted that if a Medicaid applicant makes gifts in contemplation of Community Medicaid benefits and then in the future that Medicaid recipient’s health deteriorates, those gifts may affect his/her eligibility to obtain Medicaid Chronic Care benefits. However, that is why a well thought out strategy should be devised with an elder law attorney even if the applicant only needs Community Medicaid benefits at the present time.
What Is The Alternative If There Is No Power of Attorney In Place Or If The Power of Attorney Does Not Have The Proper Language In It?
Without any Power of Attorney or with a Power of Attorney that does not have the language in it that was discussed above, a guardianship proceeding would need to be commenced in the Supreme Court to appoint a guardian for the principal that no longer has mental capacity to manage his/her property. A guardianship proceeding is time consuming and the costs could be well over $5,000.00. More importantly, it could take more than a year after the proceeding is commenced until the incapacitated person is appointed a guardian. Lost time and money could be avoided by simply having a properly drafted Power of Attorney executed now, while competency is not an issue.
The bottom line is that if you do not have a Power of Attorney and want to be sure that you have an agent with proper authority to act on your behalf if you become incapacitated, or if you check your existing Power of Attorney and it does not grant your agent the necessary powers discussed above, you need to have a properly drafted Power of Attorney prepared and executed now that allows your agent unlimited gifting powers and the ability to establish trusts. The cost of a new Power of Attorney is a mere fraction of the cost of a guardianship proceeding or the total amount you could lose if you have to pay your “overage” to Medicaid every month. In the end, a properly drafted Power of Attorney will save you time and money and will help avoid numerous problems that your agent could face in the unforeseeable future.