In today’s day and age advances in medicine have permitted us to extend and preserve life more than ever before. However, for most that means that there is a period of time -- especially as we age -- when we will live with a disability. Thus, there needs to be a way of appointing someone to help us with legal and financial decisions when we are not able. This is especially important when long-term care costs threaten to drain an estate that could be saved with the proper grant of authority.
A “power of attorney” is the most common way of appointing someone to help with important legal and financial decisions. It is a written document wherein one can appoint someone to handle some or all of their legal and financial affairs. The document is based on agency law. You (the one appointing) are called the “principal” and the one appointed is called the “agent”.
In Michigan a power of attorney ceases to have legal authority if the principal becomes incompetent. However, that authority can be extended through incompetency by including language that would make it “durable”. A “durable” power of attorney survives the incompetency of the principal. This type of power of attorney is important for senior citizens precisely because we are planning for a period of disability.
Even if all assets a person has are held jointly (with someone’s else’s name on the accounts) a power of attorney is needed. This is because for certain joint property, such as stock or real estate, the joint owner cannot sign for the other without authority from a power of attorney or a court order.
To avoid the need for a court order, the power of attorney becomes crucial and very desirable. Why? Because the power of attorney can provide legal authority for a small fraction of the price. Court time can generate expense in terms of legal fees, court costs, etc. If the decision as to who is to be appointed is contested (e.g., the family cannot agree on the appointment) it can turn into a protracted legal battle that that would create a substantial legal bill. Moreover, family tensions can escalate and leave permanent scars on relationships.
Because senior citizens are preparing for the event of long-term care, nursing home and assisted living, it is very important that they have a power of attorney that grants power to transfer assets and do veteran’s benefits and/or Medicaid planning. These powers can make the difference between simple preservation of an estate for a spouse and loved ones versus expensive court time and loss of most or all of the assets (including the home).
Unless a power is specifically defined in the power of attorney, financial institutions will not honor it. For senior citizens concerned about obtaining government benefits but preserving their estates to the fullest extent possible under law, the powers granted should include but not be limited to: power to transfer assets to a trust, power to establish and fund a trust, power to make gifts, to disclaim or divest property, and to do any act necessary for Veteran’s benefits or Medicaid qualification.
The powers needed for Medicaid or Veteran’s benefits qualification are quite broad; therefore, the principal should consider whether or not the power should be “immediate” or “springing”. An immediate power of attorney says that the agent can have the powers effective upon signing; a springing power of attorney says that the powers granted will take effect only upon disability of the principal as determined by two competent doctors. Which type to use depends upon how high the trust factor is with the person who is selected to be the agent.
There are a number of factors that may cause a third party to hesitate or refuse to honor a power of attorney. These include: 1) old powers of attorney are less likely to be honored because of the possibility that they have been revoked; 2) co-agents can cause a problem because two signatures may be required for each transaction; 3) a power of attorney not prepared by a lawyer is more likely to be questioned; 4) out-of-state institutions are hesitant to accept a power of attorney unless it has a notary seal and/or has a medallion guarantee.
While most persons are aware of the importance of having an estate plan to transfer property upon death, many are not attuned to the strong need to have a plan to help deal with lifetime disability. Such disability can arise from situations where there is accident, stroke, debilitating illness or -- most commonly -- from advancing age. Those planning ahead to save their estate for spouses or heirs should obtain an appropriate Durable Power of Attorney.