THE UNWARRANTED FEAR OF LAWYERS: COSTS AND CONSEQUENCES
As those who read my column on a regular basis know, I practice elder care law and only elder care law. In my “free” time, I present educational seminars on issues of elder care law to the general public and professionals.
I have heard comments from thousands of people on issues such as taxes, Medicaid, Wills, trusts, and powers of attorney. Having heard all of those comments, I can say one thing with certainty: A great number of people harbor the same misconceptions, laypersons and professionals alike.
The underlying, universal theme behind these misconceptions is fear – people fear the need to contact an attorney. Like going to a dentist, people will seemingly do anything to avoid having to see a lawyer. And, like the tactics people engage in to avoid the dentist, many of these tactics are far more complicated and, ultimately, more painful than the visit would ever be.
One panacea that people have devised to cure the need for a lawyer is holding assets jointly with a child. For example, mom places her daughter’s name on her bank accounts, brokerage accounts, and, perhaps, her house. In mom’s mind, this action has several positive results.
One of those perceived positive results is the avoidance of the need for a general durable power of attorney. Now that the daughter’s name is on the bank accounts, mom believes that she doesn’t have to sign a power of attorney in favor of her daughter. If the mother were too sick to handle her own affairs, a durable general power of attorney would permit the daughter to access the mother’s assets in order to pay her bills.
Another perceived benefit is probate avoidance. Since the daughter’s name is on the bank account and owns the account jointly with her mother, the account will pass to the daughter when the mother dies. This happens because the daughter is a joint tenant with right of survivorship. Because of this, the assets in the account will automatically pass to the daughter upon the mother’s death and avoid probate.
Lastly, mom may believe that by adding the daughter’s name to the bank account she is moving herself closer to being eligible for Medicaid since her daughter now owns some or all of the bank account and “Medicaid can’t take her money.”
The truth is, there is a tremendous amount of danger to adding another person’s name to your account and assets, such as your house.
When the mother adds the daughter’s name to her bank and brokerage accounts, those assets become the assets of the daughter. If the daughter is ever sued, mom’s assets are liable for those debts. If the daughter gets divorced, mom’s assets could be involved in the daughter’s divorce. Yet, despite all of this exposure – from lawsuits and divorce – mom hasn’t sheltered her bank and brokerage accounts from Medicaid.
Simply adding another person’s name to a bank account does not make the bank account unavailable to pay your medical bills. Since the account is still available, the account will prevent mom from being eligible for Medicaid benefits.
So, what mom gets is a tremendous amount of exposure, with no benefits.
Furthermore, when mom passes away, the bank and brokerage accounts will be the daughter’s assets. Those assets will by-pass probate, but they will also by-pass other family members, a fact that I have mentioned in another column. If mom has other children, those children may be cut off from receiving their share of the assets held in the bank and brokerage accounts, because the account will be owned by the daughter, the co-owner, not mom’s estate.
The best, and only advisable, solution is to have a general durable power of attorney and a Will. The expense of these documents is extremely minimal in relation to the costs to which you are exposing yourself in attempting to avoid the need for these documents.
As for Medicaid planning, Medicaid is an extremely complex area of the law. Every person’s circumstances differ. I would always recommend consulting with an attorney experienced with Medicaid issues before engaging in any plan to qualify yourself for Medicaid.
Misunderstandings in this area are common and often go unrecognized until a problem arises. Taking the time to question assumptions can help avoid decisions that create unnecessary complications later.