In the many powers of attorney I see in my line of work, one problem recurs over and over again. And it’s costing families tens of thousands, and even hundreds of thousands, of dollars in asset protection.
The number one problem is inadequate gifting provisions.
If you’re like most people, you’re probably not sure what I mean by “gifting provisions” and have no idea why it might be important. Many lawyers who draft powers of attorney lack an understanding of this issue (I was once one of them). That’s why the problem is so prevalent.
In this blog post, I will explain the issue so you can avoid the problem.
A durable power of attorney (POA for short) is a document that allows someone else to make decisions for you, and make financial transactions on your behalf, when you cannot because of dementia, infirmity, unconsciousness, or some other reason. The person who acts for you is called your “agent.”
Your agent can only take actions that are authorized in the document. For example, if the POA allows your agent to make banking transactions on your behalf, then your agent could write checks on your behalf, transfer money between your bank accounts, cash in a certificate of deposit, and so on. If the POA did not authorize banking transactions, your agent could do none of those things.
So it’s very important to make sure that your POA gives your agent all the powers he or she will need.
In Pennsylvania, strict law prohibits your agent from gifting money or assets to anyone (including your spouse, children, or other relatives) unless your POA specifically authorizes gifting.
What so few people realize is that gifting is an important strategy for protecting assets when someone needs nursing care. If you need to be in a nursing home that charges $10,000 a month or more for care, proven Medicaid planning strategies can help you afford that care without losing your life savings.
But if you can’t make your own decisions, your agent can gift assets to family members only if your POA allows it. As a lawyer who helps families qualify for Medicaid, I hate to see people have to spend down their life savings when a simple gifting provision in their POA would have allowed them to protect much of it for their family.
To avoid this problem, and make sure you have all of the right POA provisions, make a modest investment to hire an experienced elder law attorney to draft your POA. It may be one of the most important investments you’ll ever make.