You have worked hard your entire life. You have saved up a nice little nest egg for yourself, so you can use it if you need it. You’ve even had your own estate plan set up, including a will, financial and health care powers of attorney and maybe even a trust. You think you have done everything necessary to protect your assets for yourself during your lifetime and for your loved ones after your gone. But have you?
What you may not realize is that the instructions you have in your financial power of attorney are key to how those assets can be protected for you and for your loved ones in the event of a nursing home admission. If you are like most people with whom I have discussed it, if you go into a nursing home, you’d rather have your hard-earned assets go to your loved ones rather than to the nursing home.
It is often the case that by the time you are admitted to the nursing home, you no longer are capable making your own decisions. Your loved ones are making them for you with the instructions that you have left in your financial and healthcare powers of attorney.
However, if you do not have the proper instructions in your financial power of attorney, your loved ones may be unable to protect your assets in the event of your admission to a nursing home. Instead of going to your loved ones as you intended, those assets are being spent down by some $7,000, or more, per month for private pay nursing home care.
Under the current Medicaid rules, if you are married and one spouse is in the nursing home, there are ways to protect your marital assets for the well spouse. You do not have to spend any of your assets down for nursing home care. By transferring all of your excess marital assets into a special trust for the benefit of the well spouse, none of those assets would have to be spent down on nursing home care before Medicaid starts paying for the care.
If you are single and in the nursing home, there are also ways to protect your assets for your loved ones. Although you cannot protect all of your assets as you can with a spouse, you could save about half of your assets for your loved ones. You would only spend down about half of your assets on private pay nursing home care before Medicaid starts paying for the care.
To protect your assets when you are in the nursing home, you need to be able to make transfers of assets to your spouse or other loved ones. For you to be able to make these transfers, you either have to be mentally capable of making those transfers, or you have given appropriate instructions in your financial power of attorney.
Do not think that just because you have a financial power of attorney drafted by a lawyer, that your financial agent has the authority to protect your assets and make these transfers. Your financial power of attorney must have been given the specific authority to make these transfers. The specific authority given to your financial agent in a financial power of attorney must comply with the recent changes in the financial power of attorney statute, which confirmed existing court case law.
In order to make transfers to your loved ones and protect your assets, your financial power of attorney must have very broad gifting powers. Your financial power of attorney must have specific provisions to allow your financial agent to make gifts of your assets to your spouse or other loved ones, including to your financial agent.
Most financial powers of attorney that have been brought to our office for review were prepared by lawyers or others who were not familiar with the Medicaid rules and do not include the appropriate language. Some financial powers of attorney prohibit gifting all together. Others limit gifts each year to the federal gift tax annual exclusion amount, which in 2012 is $13,000.
Another annual limitation that has been in financial powers of attorney is that gifts can be made, but they must not exceed the greater of five percent of your assets or $5,000. Other financial powers of attorney prohibit any gifts that would benefit the financial agent.
Any of these limitations can have detrimental effects on protecting your assets for your spouse or other loved ones. The gifting power that is in your financial power of attorney must allow your financial agent to make gifts of substantially all of your assets to your loved ones. If you want your agent to be able to make gifts to him or herself, there must be a specific provision stating such.
You have to be very careful in choosing your agent in your financial power of attorney when you are giving him or her broad powers of gifting. A financial agent who is not trustworthy may be tempted to make gifts to him or herself when you still have financial needs. If you have any inkling that a prospective financial agent can’t be trusted or would use your assets for his or her own benefit, choose someone else. You do not necessarily have to choose your spouse or your oldest child as your financial agent if money management skills are not one of the gifts that God has given him or her.
Not only should you choose a financial agent with good money management skills and who can be trusted, you should choose at least two similarly qualified backup financial agents. In the event that an agent cannot act, your wishes can still be fulfilled without probate court intervention. I have seen many situations where the named financial agent or agents died, or otherwise could not act, necessitating a probate court supervised conservatorship. This was contrary to the person’s intent of avoiding probate court involvement by having a financial power of attorney in the first place.
If you would rather have your hard-earned assets go to your loved ones instead of the nursing home, you should consult with a qualified elder law attorney who has experience in these matters. If your financial power of attorney does not have the proper language to allow your financial agent to do this asset protection planning and you are still mentally capable, you can have a new financial power of attorney drafted that includes the appropriate language.
However, if you are not mentally capable, your options are limited. In certain instances, your well spouse may be able to go into court and request that the court enter an order allowing a transfer of the assets to the well spouse. In other instances, there is little that can be done because you did not have adequate instructions in your financial power of attorney.
With proper advice and counsel, you can control your property while you are alive and well, provide for you and you loved ones when you are mentally disabled, and after you are gone, you can give what you have to whom you want, when you want, the way you want.
By: Matthew M. Wallace, CPA, JD
Published edited December 9, 2012 in The Times Herald newspaper, Port Huron, Michigan as: Power of attorney key to nursing home care