I meet with a great many people and review their estate planning documents. Two of the most common estate planning documents are a power of attorney and a living will.
A power of attorney is a document that permits one person, called the agent, to make financial decisions for another person, called the principal. A living will is a document that permits one person, called the health care agent/proxy, to make health care decisions for another person, called the declarant. (For simplicity, I’ll call the person charged with making decision the “agent” whether I am referring to a power of attorney or living will and the person who names his agent for financial or health care decisions the “principal.”)
Together, a power of attorney document and living will could permit an agent to make any decision he may need to make for his principal; however, a great many power of attorney and living will documents are not well-drafted. The documents fail to address common issues that arise and, therefore, do not permit the agent to make decisions on certain issues that he may need to make. There are common issues that I look for in every power of attorney and living will that I review.
With respect to a power of attorney, I always look to see if the power of attorney document addresses gifting of the principal’s assets. Many people, if asked, may not want their agent to be able to gift their assets.
But, here’s a common situation that I encounter. A son or daughter is sitting in front of my desk. The son is telling me how his mother is currently residing in a nursing facility because she has multiple ailments and can no longer care for herself. Mom is going to reside in a nursing home for the remainder of her life. The nursing home costs $12,000 a month, and mom’s monthly income is $1,500 a month, leaving a short fall of $10,500 a month.
Mom has a house worth $150,000 and about $100,000 in other assets. The son is asking me if I can preserve a portion of mom’s assets and qualify mom for Medicaid benefits. Medicaid is a government health insurance program for needy individuals that will pay for mom’s care in a nursing home. In order to qualify for Medicaid, mom must have a very limited amount of assets.
Mom is currently mentally incapacitated and cannot make decisions for herself. I ask the son if he is mom’s power of attorney agent, and he tells me that he is. I ask to review the power of attorney document. The document fails to address gifting; in other words, the document does not permit the son, as mom’s agent, to gift her assets. I now have to tell the son that we cannot engage in Medicaid planning because the power of attorney mom signed does not permit gifting and any Medicaid planning that I would suggest would involving gifting some of mom’s assets.
If mom’s power of attorney document had permitted the son to gift mom’s assets, I could have helped him preserve a portion of mom’s assets from the nursing home. I may still be able to do it despite the poorly drafted power of attorney, but it would involve filing for guardianship over mom and asking the court’s permission to engage in Medicaid planning.
With respect to a living will, I always review the document to see if it addresses the Health Insurance Portability and Accountability Act (“HIPAA”). HIPAA is a privacy law that prevents any person other than you from gaining access to your medical information.
Doctors, hospital, and insurance companies are well aware of HIPAA and will not share your health care information with anyone other than you and your personal representative for HIPAA purposes. For this reason, I always address HIPAA in the living wills that I draft and ensure that your agent is your personal representative for HIPAA purposes. Most of the living wills that I review fail to address HIPAA.
It is important to have a well-drafted power of attorney and living will. When your agent goes to use those documents, you typically can no longer make decisions for yourself, so the document cannot be changed to address issues that it fails to address.