Which Powers should a Power of Attorney Include?

Most clients have at least heard of powers of attorney (POA), and I find that many people with an existing estate plan have one.  However, I find the biggest problem with powers of attorney is not the lack of one, but having one without sufficient powers or provisions to work well for the client.  For that reason, you need to know powerful this document is and identify its limits. A recent article from Forbes titled “4 Power of Attorney Clauses You Need To Focus On” addresses many key provisions to consider in the power of attorney.

First, as a primer, the POA is a document that assigns decision making to another person during your life.  People often do this for when they become incapacitated in life, but also for convenience, such as a spouse having authority to interact with a bank, signing at a remote real estate closing and so on.

The agent acting under the authority of your POA only controls assets in your name. Assets in a trust are not owned by you, so your agent can’t access them. The trustee (you or a successor trustee, if you are incapacitated) appointed in your trust document would have control of the trust and its assets.  Also, POAs are for lifetime delegation of decision-making, so they cease to be effective when you die.

If you want more background on what they are, see this classic blog.  https://www.galliganmanning.com/power-of-attorney-planning-for-incapacity/

With all of that said, here are three key provisions to consider within your POA to make it effective for your circumstances.

Determine gifting parameters. Will your agent be authorized to make gifts? Depending upon your estate, you may want your agent to be able to make gifts, which is useful if you want to reduce estate taxes or if you’ll need to apply for government benefits in the future. You can also give directions as to who gets gifts and how much.

In recent years I’ve discussed the possibility of extensive gifting quite a lot so that wealthier clients can consider making large gifts for estate tax purposes. In elder law cases this is one of the most key provisions in a POA as it provides options for long term care planning.

Can the POA agent change beneficiary designations? Chances are a lot of your assets will pass to loved ones through a beneficiary designation: life insurance, investment, retirement accounts, etc. Banks tend to build products that provide for this, which is good, but does raise issues within your estate plan.  Do you want your POA agent to have the ability to change these? In most states, Texas included, your POA needs to expressly provide for this power.  So, it is important to consider if you will need this power to adequately control assets in the future.

Can the POA create or amend a trust? Depending upon your circumstances, you may or may not want your POA to have the ability to create or make changes to trusts. This would allow the POA to change the terms of the trust, and potentially beneficiaries depending on the terms of the POA.  It is also worth considering this if you’ll need long term care in the future as these provisions assist with qualified income trusts which are helpful in Medicaid planning.

The POA is a more powerful document than people think, and that is especially true with powers crafted to fit your wishes and needs. Downloading a POA and hoping for the best can undo a lifetime of financial and estate planning. It’s best to have a POA created that is uniquely drafted for your family and your situation.

Reference: Forbes (July 19, 2021) “4 Power of Attorney Clauses You Need To Focus On”

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How Does a Special Needs Trust Work?

Special Needs Trusts hold assets for an individual using government benefits to provide for them without losing the benefits.

Clients uses trusts for a lot of reasons, including probate avoidance, creditor protection, privacy and smooth and efficient estate administration.   Some trusts, such as Special Needs Trusts (aka Supplemental Needs Trusts) are used specifically to maintain government benefits for the beneficiary while still providing for their needs.  Not using the right type of trust can lead to financial devastation explains the article “Take special care with Special Needs trusts” from the Herald Bulletin.

The purpose of a Special Needs Trust is to help people because they have a disability and are or may be supported by government benefits.  Most of these benefits are means-tested, meaning, a beneficiary’s eligibility is dependent upon their income, assets or potentially both.  The rules regarding the benefits are very strict. An inheritance may disqualify a person with a disability from receiving these benefits, possibly putting them in dire circumstances.

However, clients may still want to provide for that loved one, and the Special Needs Trust is the way to do it.  The value of assets placed in a Special Needs Trust does not count against the benefits.  However, this area of the law is complex, and requires the help of an experienced elder law estate planning attorney. Mistakes could have lifelong consequences.

The trustee manages assets and disperses funds on a discretionary basis.  Selecting a trustee is extremely important, since the duties of a Special Needs trust could span decades. The person in charge should be ready to work with competent advisors who are familiar with the government programs and benefits and who can advise the trustee of the consequences of disbursements.

These are just a few of the considerations for a trustee:

  • How should disbursements be made, balancing current needs and future longevity?
  • Does the request align with the rules of the trust and the assistance program requirements?
  • Will anyone else benefit from the expenditure, family members or the trustee? The trustee has a fiduciary responsibility to protect the beneficiary, first and foremost.

Parents who leave life insurance, stocks, bonds, or cash to all children equally may be putting their Special Needs child in jeopardy.  What’s more, children who try to provide for their parents often don’t consider that their parents may require governmental assistance at the end of their lives such as long term Medicaid.  Well-meaning family members who wish to take care of their relative must be made aware of the risk of leaving assets to an individual with disabilities, and in fact, good planning suggests including contingent Special Needs Trusts in your estate planning documents.  After all, a loved one might not have a disability when you create your estate plan, but they might by the time they receive from your estate plan.

An experienced elder law or estate planning attorney will be able to create a Special Needs trust that will work for the individual and for the family and can advise you how to include such planning in your estate documents.

Reference: Herald Bulletin (March 13, 2021) “Take special care with Special Needs trusts”

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Protect Assets from Medicaid Recovery

Medicaid is a government program used by Americans to pay long-term care, typically for nursing homes or in-home care.   What some people don’t realize is that Medicaid seeks reimbursement for money spent on someone’s behalf after they pass away.  The Medicaid Estate Recovery Program (MERP) is used to recoup costs paid toward long term care, so that the program can be more affordable for the government, says the article “What is Medicaid Estate Recovery?” from kake.com. Beneficiaries of Medicaid recipients are often surprised to learn that this impacts them directly, and are even more surprised that you can protect assets from Medicaid recovery with some planning.

Medicare was created to help pay for healthcare costs of Americans once they reach age 65. It covers many different aspects of healthcare expenses, but not costs for long-term or nursing home care. That is the role of Medicaid.

Medicaid helps pay the costs of long-term care for aging seniors. It is used when a person has not purchased long-term health care insurance or does not have enough money to pay for long-term care out of their own funds.  Medicaid is sometimes used by individuals who have taken steps to protect their assets in advance by using trusts or other estate planning tools.  See here for more detail.  https://www.galliganmanning.com/can-i-afford-in-home-elderly-care/

The Medicaid Estate Recovery program allows Medicaid to be reimbursed for costs that include the costs of staying in a nursing home or other long-term care facility, home and community-based services, medical services received through a hospital when the person is a long-term care patient and prescription drug services for long-term care recipients.

When the recipient passes away, Medicaid is allowed to pursue assets from the estate. In fact, Federal law requires the states to have such a program.  Now, this is critical to recognize, but the scope of Medicaid varies widely between what state provided the benefits.  For the most part it means any assets that would be subject to the probate process after the recipient passes. That may include bank accounts, real estate, vehicles, or other real property.  Texas Medicaid recovery is happily limited to the estate.  So, there are many options to protect assets from Medicaid recovery in Texas.

In some states, recovery may be made from assets that are not subject to probate: jointly owned bank accounts between spouses, payable on death bank accounts, real estate owned in joint tenancy with right of survivorship, living trusts and any assets a Medicaid recipient has an interest in.

An estate planning attorney will know what assets Medicaid can use for recovery and how to protect the family from being financially devastated.

While it is true that Medicaid can’t take your home or assets before the recipient passes, it is legal for Medicaid to have a claim to assets before the beneficiaries, similar to the way other creditors of a decedent must be satisfied before beneficiaries receive property.  Let’s say your mother needs to move into a nursing home. If she dies, you’ll have to satisfy Medicaid’s claim before you can take possession or will pay the claim as part of a sale.

Strategic planning can be done in advance by the individual who may need Medicaid in the future. One way to do this is to purchase long-term care insurance, which is the strategy of personal responsibility. Another is removing assets from the probate process. Married couples can make that sure all assets are owned jointly with right of survivorship, or to purchase an annuity that transfers to the surviving spouse, when the other spouse passes away.

In most cases we can advance clients on how to change the the titling of their accounts to protect assets from Medicaid recovery before the person passes away.  We may also be able to create a Medicaid Asset Protection Trust, which may remove assets from being counted for eligibility.

As a final point, clients often encounter the medicaid claim in the estate, which is the first time an attorney is involved in the process.  Now, you may not have the same options to protect assets from Medicaid recovery because you’ll have lost prospective planning, but their are exceptions to recovery and ways to defend against the claim.  They are all very time sensitive however, so you should reach out to an attorney immediately upon encountering them.

Speak with an estate planning attorney to learn how to prepare for yourself or your parent’s future needs. The earlier the planning begins, the better chances of successfully protecting the family.

Reference: kake.com (Feb. 6, 2021) “What is Medicaid Estate Recovery?”

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