Basic Estate Planning Documents

Durable Power of Attorney

It has always been possible to sign a Power of Attorney. It would allow an individual to authorize someone else to manage their affairs. However, the power became void if the grantor of the power either died or became incompetent. Thus, at the very time one wished a power of attorney to be effective (at incapacity), it became useless. The reasoning was that the power could only be effective so long as the grantor of the power had the ability to revoke it. Obviously, with death, the ability to revoke ended, but likewise with incapacity, the ability to revoke the power ended when you no longer had the mental capacity to make that choice.

Thus, we had a “catch 22,” in that the very moment most people wanted a power to be effective, that is, at incapacity, the power was automatically revoked.

Luckily there is now legislation allowing for the creation of a durable power of attorney. This power continued to terminate upon the death of the principal but would remain in full force and effect during any incapacity. This is a tremendous improvement and gives us a “window of opportunity” in estate planning, particularly in the context of planning for nursing home costs.

What is a durable power of attorney?

A durable power of attorney is a written document in which you, as the principal, designate someone you trust, such as your spouse, another family member, a friend or a professional (or any combination) as your attorney-in-fact.

Your attorney-in-fact is authorized to perform certain acts on your behalf. You may give as much or as little power to your attorney-in-fact as you desire. Generally, a durable power of attorney is very broad, intending to allow the attorney-in-fact to do anything and everything necessary to fully manage your affairs.

Your attorney-in-fact is not your lawyer, unless you specifically choose him. The phrase “attorney-in-fact” is simply the name we give to the person designated in the power to handle the principal’s affairs.

Not all powers of attorney are durable. If the power is not durable, it is an “old” style power, and will automatically be revoked when you become disabled. To make a power a durable power, you need only add a sentence, such as

This power of attorney shall not be affected by the subsequent disability or incapacity of the principal.

The powers you give your attorney-in-fact will be in effect the moment the document is signed. For this reason, care should be taken in the whereabouts of the document itself. Generally, you want to retain physical control of the power of attorney until such time as it is needed.

What happens if you do not have a durable power of attorney?

If you become legally incompetent and have not previously executed a durable power of attorney, in order for anyone to act on your behalf, they must be appointed by the probate court, to be your conservator or guardian. The court appointed fiduciary may be, but is not necessarily, the competent spouse.

Once a guardian or conservator is appointed, he will be subject to the jurisdiction of the probate court. He will not, in most instances, be able to sell, transfer or mortgage any assets without first obtaining court approval. This is important in many circumstances, particularly in Medicaid planning (a request by a guardian or conservator to transfer assets so as to become eligible for Medicaid could be opposed by the State, on the grounds of making oneself indigent so as to receive state benefits, and such a request could be denied by the Court).

Additional problems with court appointment include time delays and expenses (for legal fees, court filing fees and a surety bond, if necessary). Furthermore, the conservator or guardian must file periodic accounts with the probate court, and these accounts will be open to public scrutiny.

Who is the attorney-in-fact?

The attorney-in-fact is a fiduciary. The term “attorney-in-fact” is a term of art which does not mean your lawyer unless he is the person you specify in the document. However, your attorney-in-fact must be someone who will act in your best interest. He is required to account to you for all funds or other assets in his possession, and he is liable to you for any improper actions taken, as measured against the duty of care imposed on fiduciaries generally.

When should you draft a durable power of attorney?

The best time to consider implementing this document is now, while you are competent and have absolutely no reason to delegate your financial affairs to another person. Now is the time to address your estate planning needs, both those that benefit you while you are alive, and those that benefit your family at your death.

Must a third party (such as a bank) honor a power of attorney?

No. No third party is required to accept a power of attorney. However, it is usually acceptable, although varying degrees of reluctance will be encountered. The reason is the ever-present possibility that the principal (the person granting the power) may have since revoked the power. In that event, the principal might disavow any transaction a bank (or other third party) handled in reliance on the power of attorney. For this reason, a revocation of a power is only binding upon a third party once they receive actual notice of the revocation.

Gifting language in the Durable Power of Attorney

Most Powers of Attorney do not contain express gifting language or have gifting language limited to the annual gifting limit (originally $10,000, now $15,000 as of 2019).

A major reason to have a Durable Power of Attorney in place is to provide a way to be able to reach assets should we wish to initiate some transfers to children so as to qualify for Medicaid benefits without first exhausting all resources in the payment of a nursing home bill.

Currently, if we make a transfer of assets (usually to preserve assets in the event nursing home care is required), and we tell Medicaid (the DMA) about it, they believe us! We simply calculate how long we wait to qualify for Medicaid, and then proceed.

However, someday soon, Medicaid is going to want to see proof of the transfer, and they will examine the Durable Power of Attorney for gifting authority. If the Power of Attorney does not contain gifting language, the DMA will disallow the transfer on the grounds that the agent had no authority under the Power to make a gift. If no gift occurred, then the asset still belongs to the Medicaid applicant, which means he has more than the permitted $2,000, which means he does not qualify for benefits. This is good for Medicaid and bad for us. It is good for Medicaid because if they can deny benefits their “bottom line” looks better, since they are saving money.

Thus, a properly drawn Durable Power of Attorney should contain explicit gifting authority (not tied to any “past gifting practices,” or limited to any annual exclusion amount).

Health Care Proxy

In response to the Nancy Cruzan case, decided by the United States Supreme Court, as of January 1, 1991, we now have in Massachusetts a “Health Care Proxy Statute,” which gives legal recognition to your designation of some person to act as your health care agent regarding medical treatment. A separate form has been created by the Massachusetts Office of Elder Affairs; completion of this form as part of your overall estate plan is highly recommended.

This is because recent state regulations require hospitals to inform you of your right to execute a health care proxy, and to supply the form. Unfortunately, the time to think about terminal illness decisions is not at the time of admission to the hospital; at that point, you are usually only interested in thinking about a positive outcome to your hospitalization, and you do not want to think about the possibility you might die.

Thus, it is best to consider your terminal illness decisions in the relative calm and stress-free atmosphere of creating your overall estate plan. Then, if a later hospitalization becomes necessary, you can focus all your energies on a successful outcome to the hospitalization, and yet know that you have already made your decisions about terminal illness care.

HIPAA Medical Privacy Law

The Health Insurance Portability and Accountability Act, known as HIPAA, enacted privacy regulations effective as of April 2003. These regulations are designed to ensure the privacy of all persons’ medical information. There are criminal and civil penalties to doctors and hospitals for the unauthorized disclosures of confidential medical information. Because much of the medical community is frozen in fear of violating HIPAA, we are seeing some unintended and absurd results, such as a child’s inability to learn the whereabouts or status of her mother.

As a result of HIPAA, doctors, nurses, hospitals, and other health care providers are no longer able to discuss a patient’s status or health with spouses or other family members. They may only do so if the patient had previously signed a consent form authorizing such disclosure.

Nowadays, when you go to the doctor’s office, you are being asked to sign certain forms related to HIPAA. Unfortunately, these forms are merely a disclosure of the new requirement to maintain confidentiality about medical information. The forms do not authorize any family member to receive medical information about you. Without such authorization, the family will not be able to learn anything about your medical status.

All persons should sign a HIPAA Authorization and Release. This document designates one or more family members to receive medical information on your behalf.

The HIPAA Authorization should not be confused with the Health Care Proxy. The Health Care Proxy designates someone to make medical decisions on your behalf, but only when you are no longer able to make your own decisions. The HIPAA Authorization would allow family members to receive information about your medical status, even though you are still making your own decisions.

While the intent of HIPAA is laudable—it guarantees that information about patients cannot be sold to marketers or shared with employers—it has also created stress and anxiety on families, who are finding they are unable to learn the medical status of their relative. In order to make sure that family members are kept in the information loop, all persons should sign the necessary Advanced Directives—HIPAA Authorization and Release (so family can learn about a person’s medical status) and Health Care Proxy (so a family member can be designated to make medical decisions for you when you cannot).

Madge & Johnson is a law firm in Westford MA, specializing in estate planning and elder law.