In estate planning, there are documents that are useable during your lifetime, documents that are only useable after death, and documents that are useable both during your lifetime and after your death. And people get them confused all the time.
The most common estate planning documents that are only effective during lifetime are durable powers of attorney. What makes them “durable” is that they stay effective even after your mental disability. The most common estate planning documents effective only after death are wills. And the most common estate planning documents effective both during lifetime and after death are revocable living trusts.
There are two general types of powers of attorney, one for financial matters and the other for health care matters. These two types of powers of attorney should not be combined in a single document since they each have different legal requirements. Unless stated otherwise in the document, powers of attorney do not expire until the maker does. However, there are certain powers in both financial and health care powers of attorney that survive the maker.
If you sign a financial power of attorney, you are called the principal. In most instances, a properly drafted general durable financial power of attorney can avoid a conservatorship and instead have the financial agents you choose making decisions for you when you cannot. The financial agent is also called the attorney-in-fact. Without a valid executed financial power of attorney in place, if you become mentally disabled, your loved ones would have to file for a probate court supervised conservatorship to have someone handle your property and financial affairs.
If you sign a health care power of attorney, you are called the principal or patient. A properly drafted durable power of attorney for health care in most instances can avoid a guardianship and instead have the health care agents you choose making decisions for you when you cannot. The health care agent is also called the patient advocate. A durable power of attorney for health care is also called a health care power of attorney, patient advocate designation or designation of patient advocate and these terms can be used interchangeably. Without a valid executed health care power of attorney in place, if you become mentally disabled, you loved ones would have to file for a probate court supervised guardianship to have someone handle your care, custody, and medical and mental health care treatment decisions, such as where you are going to live and who is going to be the primary caregiver.
Some attorneys will set expiration dates in powers of attorney, such as five years, after which the power of attorney will expire and will no longer be valid. I have reviewed a number of these powers of attorney after expiration, and in almost every case, the client did not know that the power of attorney was expired. We generally do not put expiration dates in our powers of attorney unless the client wants the power of attorney for a specific time period or for a specific use, such as for the purchase or sale of real estate.
You can generally revoke powers of attorney any time you are able and are not mentally disabled. Powers of attorney are lifetime documents. If you do not revoke them and they do not have an expiration date in them, they expire when you do. Your loved ones cannot use your financial power of attorney to withdraw funds out of your bank accounts after your death. However, if your agent in your financial power of attorney acts after your death, the actions may still be valid until your agent or the account holder receives actual notice of your death.
Although powers of attorney are lifetime documents, there are powers that can survive your death. To save for college, or in an attempt at your own do-it-yourself mini-estate plan to avoid probate, you may have set up and transferred funds to special accounts for the benefit of children, grandchildren or other relatives. These could be set up under the Uniform Transfers to Minors Act (UTMA), as Qualified Tuition Programs under Section 529 of the Internal Revenue Code (529 Plans), or if the account was set up prior to 1998, the Uniform Gift to Minors Act (UGMA). If there is no designation of a successor custodian, owner and/or agent in your original account documents, then the financial institution or other account holder may require your loved ones to obtain a probate court order to appoint a successor after your death. If there is a provision in your financial power of attorney that appoints your power of attorney financial agent as the successor custodian, owner and/or agent of these accounts, it would avoid the necessity of a probate court order in these circumstances. The power to appoint the successor custodian, owner and/or agent of these accounts does not expire with you.
You can include in your health care power of attorney, the power to make an organ donation or anatomical gift of all or part of your body and may include the authority to resolve a conflict between the terms of your advance health care directive or living will and the administration of means necessary to ensure the medical suitability of the anatomical gift. If your health care power of attorney includes a statement that these anatomical gift powers remain exercisable after your death, then the powers continue after your death and are not revoked.
You can also include in your health care power of attorney, the designation of a funeral representative, which only takes effect after your death. Under Funeral Representative Act of 2016, you can appoint an individual to make decisions about your funeral arrangements and the handling, disposition, or disinterment of your body, including decisions about cremation, and the right to possess your cremated remains. Prior to the act, you had no choice nor control of your funeral or remains, or who could make those decisions, even if you had a pre-paid funeral. Your closest heir(s)-at-law were in charge of the funeral and your remains, regardless of what your wishes were. If there were multiple closest heirs-at-law, such as children, they all had an equal say. This can create family conflict and delay the funeral if all the kids do not agree. This is still the case today if you have no funeral representative designation.
Certain governmental agencies do not honor a financial powers of attorney, such as the Michigan Department of Treasury, Internal Revenue Service, Social Security Administration and the Veterans Administration. Each of these governmental agencies have a form for you to appoint someone to represent you before that agency.
If you went into the nursing home, would you like your assets go to the nursing home or to your loved ones? This is a question that we ask each of our estate planning clients. For most all of our clients, the answer is loved ones. In that event, we make sure that the proper instructions are in their financial power of attorney to protect the maximum amount of assets that is allowed under state and federal laws.
Under current Medicaid rules, with proper planning, you do not have to spend down all your assets on the nursing home. If you are married and one of you are in, or going into, the nursing home, you can protect all of your assets for the well spouse. You do not have to use any of your assets to private pay any nursing home expenses. If you are single or both of you are in, or going into, the nursing home, you can protect your home, a car, prepaid funerals and burial expenses, certain life insurance policies and about half of your remaining assets for loved ones. And you would only need to spend down the other half of your remaining assets on nursing home care.
Your financial power of attorney must have specific authority to make these transfers to protect your assets for loved ones through very broad gifting powers. Most of the financial powers of attorney that have been brought to our office for review do not include the appropriate language. They either prohibit gifting all together, or have some sort of limitations on gifts. Any of these prohibitions or limitations can have detrimental effects on protecting your assets in the event of the nursing home admission of you or your spouse.
With proper planning, you can stay in control of your assets while you’re alive and well, provide for you and your loved ones in the event of your mental disability, and when you’re gone, give what you have to whom you want when you want the way you want, all at the lowest overall cost to you and your loved ones.
By Matthew M. Wallace, CPA, JD
Published edited December 23, 2018 in The Times Herald newspaper Port Huron, Michigan as: Powers of attorney good for life and beyond