Asset protection has grown in importance as a consideration in estate planning. Americans live longer now than ever before, and often spend more time in their senior years having diminished ability to manage their own affairs, or even to take care of themselves.

As a result, their estates are vulnerable for a number of reasons. They may be more vulnerable to lawsuits if they can’t drive well or take care of their properties. The unscrupulous may take advantage of their trust. They may need expensive nursing care for years.

The use of trusts has risen as a way to protect assets from depletion and save them for loved ones.

But it may get harder to use trusts for this purpose starting in 2015 (at least in Pennsylvania).

Here’s why. An important feature of a good asset protection plan is the ability to change course and adapt to changing circumstances. For example, a couple aged 80 and 78 may establish an irrevocable asset protection trust when they are in good health, and place most of their assets into it. Three years later, though, the husband (George) has dementia and enters a nursing home. A better strategy at that point may be to terminate the trust and divide assets according to Medicaid rules, making sure that George’s wife can keep and use as much of their combined estate as possible if George qualifies for Medicaid.

However, there’s a problem. Because George prepared his POA in 2015, it is subject to the rules of interpretation under Pennsylvania’s new statute. One of those rules is that an agent acting under a POA may “create, amend, revoke or terminate” a trust “only if the power of attorney expressly grants the agent the authority” to do so.

Unless George, or his attorney, anticipated this issue and specifically included a provision in his POA to allow George’s agent to consent to termination of the trust now that George has dementia, the assets may be tied up in the trust. Worse yet, the transfer of assets to the trust can earn the couple a period of ineligibility for Medicaid benefits if it was within Medicaid’s five-year look-back period.

The problem is easily managed if, when George set up his trust, he also obtained a good power of attorney that gave his agent all the powers that might be needed if his circumstances changed, especially during the first five years of the trust’s existence.

On the other hand, form POAs obtained from a non-specialist, bought as part of general estate planning software, or downloaded from the internet may pose dangers for the unwary under the new POA statute.

Bottom line: Make sure your power of attorney contains the right provisions to support your asset protection strategy.


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