Thursday, September 16, 2010

Mistakes Retirees Make—Powers of Attorney

Written By: Attorney Jeffrey A. Marshall, CELA*

For many of us there is no legal document that will someday become as important in our lives as a power of attorney. In the event of our incapacity, a power of attorney can help ensure that appropriate decisions will be made for us by the people we have chosen. A well-drafted power of attorney will increase the likelihood that our financial security will be protected and our intentions followed if we are ever unable to handle our own affairs. 

A power of attorney document can be the key that opens the door to protecting a family’s assets and financial security from the cost of long term care.   A recent Government study estimates that a majority of people who reach age 65 will someday need long term care.  40 percent will spend time in a nursing home where 10 percent will remain for five years or more. So, it’s no surprise that many of my clients want to protect their homes and savings from the cost of that care.

A power of attorney can help by allowing your family to act on your behalf in the event of your illness. However, the document must be carefully crafted to include special provisions to authorize asset protection planning. Not just any power of attorney will do. 

The absence of needed provisions in a power of attorney can seriously jeopardize your family’s financial security. 

On the other hand, in the wrong hands, a power of attorney can become an instrument of financial abuse and exploitation.  This is not a document to sign without expert advice and assistance.

Here are some things to consider addressing in your power of attorney. 

Name a Successor Agent
Just as you may someday be unable to make financial decisions, there is a real chance that your designated agent may someday become incapacitated, die, or be otherwise unavailable to serve. A power of attorney should anticipate this possibility by naming a back-up agent.

Address Gifting.
Qualifying for Medicaid and other government benefit programs can help you preserve your assets from the cost of long-term care. But your agent may need to transfer your assets (to your spouse or others) in order to meet program financial eligibility requirements.
Under Pennsylvania law, if you lack the capacity to make a needed transfer, your agent must have explicit authority to make gifts on your behalf. This authorization can be granted in the power of attorney.  But, if your power of attorney does not address the issue, your agent will not have the power to make gifts.  Many other states have similar laws.

Giving away assets may be a critical step in protecting those assets for your spouse or other family members. But divestment is a radical option and you want to be sure that the quality of your care never suffers as a result. Gifting powers should be finely tailored to achieve your objectives while preventing actions by your agent that would be in contravention of your goals.

Avoid Abuse
How can you help ensure that your power of attorney will never be used to take advantage of you? If you do authorize your agent to make gifts on your behalf, you will want to consider the need to protect yourself from inappropriate use of this power. You can build in protections against abuse of gifting powers by:

(a)        requiring that all gifts be approved by persons other than the agent;

(b)       limiting the persons to whom gifts can be made (for example, allowing gifts to be made only to your spouse);

(c)        requiring equality in the treatment of family members;

(d)       requiring the agent report any gifts to other family members;

(e)        naming more than one person as co-agents;

(f)        requiring that gifts be made to a restricted asset protection trust

Be Specific and Comprehensive
Language giving broad general authority to your agent is helpful, but may not be sufficient to authorize specific actions. An insurance company or broker may want to see detailed language which unambiguously authorizes a contemplated action. As a result you should enumerate in detail any powers that you think your agent may need. 

Consider the Effective Date. 
Should your agent be authorized to step in when the agent feels the time is right?  Or do you want your agent’s authority to begin only after you have been determined to be unable to handle your finances?

A “Springing Power of Attorney” is not immediately effective.  It becomes effective only if certain events occur at a future time. That is, it "springs up" only upon the happening of a specific event such as your incapacity. A Springing Power of Attorney typically provides that your agent cannot act until after a physician has determined that you are not competent to handle your affairs. 

A springing provision in a power of attorney can make life more difficult for your agent, but it may be an appropriate protection for you.  Discuss this issue with your lawyer.

Consider Health Care Decisions.  Do you want the person named as your financial agent to make medical decisions for you?  It is a good idea to designate the person you want to authorize to make health care decisions for you.  This may or may not be the same person you want to name to handle financial matters.  If your choice for health care is someone other than your designated agent for financial matters, it is best to have two separate documents. 

Choose the Right Agent. Above all, make certain the person you name as your agent is someone with the time, ability, and honesty to act on your behalf. A power of attorney is an invaluable legal tool. Be sure to take your time when you have one prepared and make sure that your document will protect you.

*Jeffrey A. Marshall is Certified as an Elder Law Attorney (CELA) by the National Elder Law Foundation. He is licensed to practice law in Pennsylvania with his main office located in Williamsport, Pennsylvania.  He can be reached at, or through his website

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