Thursday, August 23, 2012

I'm Power of Attorney for my Dad. What are my Duties? Part 2

This is Part 2 of my article “I’m Power of Attorney for my Dad. What are my Duties? [To read Part 1, click here]

As I noted in Part 1, serving as power of attorney (Agent) for someone is serious business. Here are some rules you should follow to keep out of trouble.

1. You must act prudently and reasonably in all actions you take in your role as Agent.

2. Unless otherwise specified in the Power of Attorney, you should avoid all conflicts of interest. Your responsibility is to act in the best interest of the person who signed the document and who has invested this trust in you.

3. You must respect the terms of the document. If you are not given authority to undertake a particular action, you should assume that you cannot take that action. If you identify any ambiguities in the document or if you are uncertain, you should consult with an experienced lawyer. Also, be sure to note any limitations or restrictions on your powers.

4. Unless you are specifically authorized to do so by the Power of Attorney, none of the Principal’s assets should ever be placed in your name.
Be sure that none of your assets are mixed with those of the Principal.

5. If you execute any documents on behalf of the Principal, you should specifically indicate that you are acting as the “Agent” for the Principal, and not on your own behalf. For example, you can sign "Howard Jones, as Agent for Rachel Wilson" or "Howard Jones, POA for Rachel Wilson." In these examples, Howard Jones in the Agent and Rachel Wilson is the Principal.

6. You should maintain careful and complete records of all steps you take on behalf of the Principal. It is important that you retain receipts and maintain good records of all checks written, other disbursements made, all liabilities of the Principal with which you have involvement or knowledge, all income and other assets you receive, and all actions you take on behalf of the Principal. The maintenance of such records minimizes the possibility that you will be exposed to liability.

7. You have the right to reasonable compensation for your services. If you decide to claim compensation, you should be sure to maintain careful records indicating how much you have been paid and the documentation that justifies such compensation.

8. Maintain close communication with the Principal. Even if there has been a determination that the Principal is incapacitated, make your best efforts to talk with the Principal about the actions you are taking. You may also need to talk with the Principal’s family members, physician, professional advisors, and other interested persons on the Principal’s behalf.

If ever you are acting as an Agent and are not sure you are doing the right thing, seek out professional advice not only to protect the Principal, but to protect yourself.

Wednesday, August 22, 2012

I’m Power of Attorney for my Dad. What are my Duties?

Your aging father (or mother) has given you power of attorney to help them handle their finances. You have decided to accept this awesome responsibility. The time has come for you to step in and start acting on their behalf. Before you begin, you should consider the legal duties involved when you serve as someone’s power of attorney.

This article, and another one I will post in a few days, are intended to help you better understand and meet those responsibilities.

First, some terminology. The person who gave you power of attorney is generally referred to as the “Principal.” The person who is acting on behalf of the Principal is called the “Agent” or “Attorney in Fact” (that's you). As Agent you are acting as a “fiduciary.” A fiduciary is a person who has the responsibility for managing the money and property owned by another. The term fiduciary comes from the Latin word fiducia, meaning "trust.” Other examples of fiduciaries include Trustees, Guardians, and Executors.

As a fiduciary you have the highest legal responsibility to be faithful to the interests of your Principal. Your job is to act to protect and safeguard and benefit your Principal. You may not put your personal interests ahead of your duties to the Principal.

Pennsylvania law requires that, unless the power of attorney document specifically varies these duties, you must:

(1) Exercise the powers for the benefit of the Principal;

(2) Keep the assets of the Principal separate from your own;

(3) Exercise reasonable caution and prudence;

(4) Keep a full and accurate record of all actions you take on behalf of the principal including income and assets you receive and disbursements you make.

In Pennsylvania, if your power of attorney was signed after April 12, 2000, you must sign a form which acknowledges that you agree to follow the above 4 requirements. Unless your signed acknowledgment form is affixed to the power of attorney you do not have any authority to act. So don't forget to do this. [Note, this requirement applies only to powers of attorney for financial matters, and not to powers of attorney that are limited to health care decision making].

A reason that the law requires you to sign the acknowledgment form is to help ensure that you understand these responsibilities. Another reason is that your signature on the form makes it easier to sue you either civilly or even criminally if you fail to abide by these standards.

Being someone’s Agent is serious business. You need to understand this before you start.

In my next post, I will give you some additional guidance on how you can successfully go about meeting your responsibilities as your father’s agent. 

Click here to read Part 2 of this article.

Monday, August 20, 2012

PA law requires children to pay for care needed by parents

Can children be held personally liable for the cost of their parent’s health and long term care?  In Pennsylvania, the answer is yes. The child can be sued and held responsible if there is no other adequate source of payment for the care  

Pennsylvania’s Domestic Relations Code imposes an obligation on a child to provide support for an “indigent” parent.  

Here is what the law[1] says:
[A]ll of the following individuals have the responsibility to care for and maintain or financially assist an indigent person, regardless of whether the indigent person is a public charge:

(i) The spouse of the indigent person.

(ii) A child of the indigent person.

(iii) A parent of the indigent person.

The above statute does not define the term “indigent person” but courts have held that a parent is indigent if they have insufficient means to provide themselves with the care and support they need. 

One Pennsylvania court recently described indigency under this law as follows: “Indigent persons are those who do not have sufficient means to pay for their own care and maintenance. ‘Indigent’ includes, but is not limited to, those who are completely destitute and helpless. It also encompasses those persons who have some limited means, but whose means are not sufficient to adequately provide for their maintenance and support.” [2]

Clearly, a person who needs care in a nursing or personal care home and who runs out of money fits the definition of indigent person. The law applies as well to a parent who needs more care and maintenance at home than they can pay for.

Some people wrongly assume that a child is only liable if their parent gave them money or property. But the Pennsylvania law is much broader than that. Whatever the reason your parent became indigent, you are liable to support them if you have the means to do so, even if no gifts were ever made.

The law authorizes nursing homes and other care facilities to sue the children of their residents. [3] If the parent has run out of money, their care facility obviously has a strong financial incentive to pursue the children for support. Over the last several years, many such lawsuits have been filed.  A recent case that has gotten a lot of attention is HCR v. Pittas – click here to read it. In that case the son was held liable for his mother’s $93,000 nursing home bill. And no gifts were involved.

Both parents and children need to be aware of this responsibility to support your parents. Children disregard their parents' declining health and financial circumstances at the child’s peril. A lack of planning by the parent, or poor planning, or general misfortune, can create this liability. When the need for long term care arises, effective planning combined with expert advice regarding the ever shifting Medicaid and support laws, can help protect not only the parent's assets, but their children’s finances as well.

Families should remember that the child’s liability is based on Pennsylvania’s family support laws, not Medicaid laws. While this liability can arise in situations where a parent is ineligible for Medicaid because they gave assets away, it can also arise where Medicaid and transfers are not involved.  Consider the following example:

Mom has been residing in Green Meadows Assisted Living Facility for the past 18 months.  Mom’s has income of $1,200 a month from Social Security. Green Meadows has a monthly cost of $3,000 per month.  This means that there is a monthly shortfall of $1,800 between Mom’s income and the cost of her care. Mom needs an assisted living level of care and is not nursing facility eligible, so Medicaid is not available. Mom has not transferred any assets. When Mom exhausts her savings, the Pennsylvania Domestic Relations Code authorizes Green Meadows to pursue an action against her children for support to cover the shortfall.   

Is your parent in danger of needing care that may someday exhaust their savings? If so, and your parent resides in Pennsylvania, you need to get expert help to make sure you don’t end up being personally liable for the cost of their care. Make an appointment with an experienced elder law attorney to find out about your family's planning options. In Pennsylvania, you can call Marshall, Parker and Associates, which has offices in Williamsport, Wilkes-Barre, Scranton and Jersey Shore.  Check them out at

[1] 23 Pa.C.S.A. §§ 4602-4608.
[2] HCR v. Pittas, 2012 Pa Super 96 (Pennsylvania Superior Court, May 7, 2012)

Thursday, August 16, 2012

What is the Difference between my Power of Attorney and my Executor

Someday, you will no longer be able to attend to your own personal and financial affairs. This may be because you become incapacitated at some point during your life, and someday, of course, we will all die. When you are no longer able to handle your affairs yourself due to incapacity or death, someone needs to step in and take care of things for you. 

You can choose who you want to act on your behalf when you are no longer capable yourself. The main two legal documents people use to name a surrogate to handle things for them are Wills and Powers of Attorney. Its important to understand that these documents work in different time frames.  You need both. 

An Executor is the person you name in your Will to take care of your affairs after you die. A Power of Attorney names a person, often called your agent or attorney-in-fact, to handle matters for you while you are alive.

Generally speaking, your Power of Attorney ceases to be effective at the moment of your death. Your agent can only take care of your affairs while you are alive. After your death, your Executor should take over.  In order to get authority, your Executor must file a death certificate, your Will, and other legal papers with a court official in a proceeding called "probate." Your Executor has no authority to act for you while you are alive. 

This means that people need have both a Power of Attorney (Agent) to give someone authority to act for them during life, and a Will (Executor) to name someone to wind up your affairs after you are gone.

For more information on Powers of Attorney see my recent blog post Powers of Attorney: Things You Need to Know.  

Friday, August 10, 2012

Medical Expense Deduction Threshold Increases on January 1, 2013

It is about to become more difficult to deduct medical expenses on your income tax return.   

Currently taxpayers can take an itemized deduction for medical expenses during the tax year that are in excess of 7.5 percent of their adjusted gross income (AGI). The deduction is permitted under Section 213 of the Internal Revenue Code which allows for deduction of medical expenses paid by a taxpayer for himself, his spouse, and his dependents.  

The deduction is taken on Schedule A of Form 1040. For tax purposes, "medical expenses" are pretty broadly defined and can include the costs incurred for long term care. 

Long Term Care Expenses can be Deductible
Amounts paid for qualified long-term care services are deductible as medical expenses under Tax Code Section 7702B. Qualified long-term care services are necessary diagnos­tic, preventive, therapeutic, curing, treating, mitigating, re­habilitative services, and maintenance and personal care services (defined later) that are:
- Required by a chronically ill individual, and
- Provided pursuant to a plan of care prescribed by a licensed health care practitioner.

An individual is “chronically ill” if, within the previous 12 months, a licensed health care practitioner has certified that the individual meets either of the following descriptions.
(1) He or she is unable to perform at least two activities of daily living without substantial assistance from an­other individual for at least 90 days, due to a loss of functional capacity. Activities of daily living are eat­ing, toileting, transferring, bathing, dressing, and con­tinence. OR
(2) He or she requires substantial supervision to be pro­tected from threats to health and safety due to se­vere cognitive impairment.

“Mainte­nance or personal care services” is care which has as its primary purpose the providing of a chronically ill individual with needed assistance with his or her disabilities (includ­ing protection from threats to health and safety due to severe cognitive impairment). Don’t forget to get the annual certification by a licensed health care practitioner if you (or your parent) intend to claim a medical expense deduction for qualified long-term care services.   A “licensed health care practitioner” includes any physician and any registered professional nurse or licensed social worker.

A recent US tax court case confirms the deductibility of caregiver expenses, even though the caregivers were not medical professionals. In Estate of Lillian Baral (U.S. Tax Ct., No. 3618-10, July 5, 2011), Lillian Baral suffered from dementia and her doctor recommended that she get 24-hour-a-day care. Her brother hired personal caregivers to assist her. The Tax Court agreed that the payments to the caregivers were deductible medical expenses, even though the caregivers were not medical personnel, because a doctor had found that the services provided to Ms. Baral were necessary.
Threshold Raised to 10%

Beginning January 1, 2013, the Health Care Reform law (Section 9013 of Title IX) modifies the medical expense deduction provisions of the Tax Code. The threshold for the itemized deduction for unreimbursed medical expenses is raised from 7.5% of AGI to 10% of AGI for most taxpayers. 

Special Rule for taxpayers who are over age 65

This new higher threshold is effective for tax years beginning after Dec. 31, 2012, except that in the years 2013–2016, if either the taxpayer or the taxpayer’s spouse has turned 65 before the close of the tax year, the increased threshold does not apply and the threshold remains at 7.5% of AGI. In 2017 the 10% rule will apply to all taxpayers. 

The itemized deduction for medical expenses reduces the tax burden on families struggling to cope with nursing home and other catastrophic long term care expenses. Currently it shields more out-of-pocket spending on health care from taxes than any other tax provision.  It is particularly important for seniors. Studies show that taxpayers aged 65 and over claim the deduction more often and deduct larger amounts than younger taxpayers. Of course, even for those who claim the deduction, the tax benefit offsets only a small portion of their medical costs. Still, the reduced deduction will hurt.

Monday, August 6, 2012

Power of Attorney: Things You Need to Know

What is a Power of Attorney

A Power of Attorney is a written document in which you give another person (called your “agent” or your “attorney in fact” or just your “POA”) the authority to act for you in accordance with the conditions you specify in the document.   In the event you ever become incapable of making financial or medical decisions for yourself, a power of attorney can ensure that people of your choosing will be able to act for you to make decisions that are consistent with your wishes and values.  

A power of attorney is a very serious document. It may become one of the most important documents you sign during your entire life.  Your power of attorney is so important that you should not rely on a simple or standard document.  It should be carefully crafted by your lawyer to meet your individual situation, preferences and goals. 

The person you designate as your agent will only be able to act in ways that are authorized in the document.  For example, if you want a family member to have access to your medical information in the event of a health care crisis, your power of attorney should grant that authority.   Or, if one of your goals is to protect your spouse’s financial security in the event you are in an expensive nursing home, your document should specifically authorize your family to do financial protection planning.  The absence of such language can seriously jeopardize the financial security of your family in the event of your long term illness.  

Capacity to Execute a Power of Attorney

For a power of attorney to be valid, the person signing it must have adequate intellectual capacity.  A power of attorney is not valid unless you knew what you were doing and understood that the document authorized someone else to make decisions for you.  In Pennsylvania, every adult is initially presumed to be competent, and a diagnosis of Alzheimer’s or other dementia does not necessarily mean that it is too late to sign a power of attorney. 

Critical Issues to Consider BEFORE you sign a Power of Attorney

Here are some critical issues to consider before you sign your power of attorney.

1. Asset Protection.  Nursing home costs in Pennsylvania are over $ 9,000 per month.  Do you want to authorize your agent to protect your assets from those costs?  If so, your agent may need to transfer ownership of your assets to your spouse or children.  This authority must be very clearly set out in the document, or your agent will not be able to protect your assets for your family. A standard form power of attorney normally doesn’t include this power, nor do documents you purchase online. Even some lawyers may be unaware of the importance of including this authorization, so you may need to raise this issue yourself. You may want to consult with a specialist, a Certified Elder Law Attorney, if you want to authorize this kind of planning.
Authorizing someone to transfer your assets can raise a number of troublesome issues. Who should be the recipients?  Just your wife or husband?  Your children? Should you require that your children be treated equally when assets are transferred?  What restrictions should be placed upon the agent?  Should the agent be authorized to make transfers to himself or herself?  And so on.  Discuss these issues carefully with your lawyer, before you sign. 

2.  Authorization as your health care agent. A power of attorney can help to ensure that you will never receive undesired medical treatments, that your pain will be limited, and that you will always be treated with dignity and respect.  To achieve these goals, your document should express your health related values and philosophy, at least in general terms, and empower a trusted agent to serve as health care advocate for you. 

And in addition to covering these health issues in your power of attorney, you should discuss them with your agent and other loved ones. No document can anticipate the exact health circumstances that will arise in your future. Your family may have to make difficult decisions in complex and ambiguous circumstances. Help them by talking with them now about your philosophy of life and death. The most effective planning will involve  conversation about your values and wishes, followed by more conservation.   

There are a number of so-called advance health care directives you can use to try to exercise some control over the medical treatment you will receive when you are not competent to speak for yourself.  These include living wills, powers of attorney, and do-not-resuscitate orders.

In general, I tend to discourage my clients from signing living wills because that form of health care directive has significant limitations. For example, a living will is effective only if you are in a terminal condition or permanently unconscious.  It is not relevant to questions about day-to-day care, placement or treatment options that may need to be made for you if you ever lacking capacity.

The health care power of attorney is a better directive for most people. The power of attorney will allow your agent to make all kinds of health and personal care decisions for you whenever you are incapacitated.  You can include instructions not only regarding end-of-life care but also other situations that may arise. With a power of attorney your agent will be able to act for you even if you are not terminally ill or permanently unconscious. 

Your agent should be someone who understands your values and who will be willing to advocate for the application of those values to whatever situation may arise.  Your agent can review the circumstances, consult with the health care providers, consider the prognosis, and then apply your values as set forth in the document, and as otherwise known to the agent through conversations with you, in making decisions.        

3.  Avoiding Abuse.  In the wrong hands, a power of attorney can be an instrument of financial abuse and exploitation. The danger of abuse is particularly acute when the document includes the authorization to make transfers of your assets or to make changes to beneficiary designations and other elements of your estate plan. While planning for qualification for public benefits may require divestiture of the assets of the principal, it is unlikely that many individuals would want the quality of their lives to suffer as a result of such planning.

You need to have your lawyer limit the potential for abuse by building appropriate protections into your document.  Of course the best protection is to choose someone as agent who is completely trustworthy and knows and will follow your wishes. But  protective provisions can also be incorporated in your power of attorney such as (1) naming joint agents, (2) requiring approval by third parties for certain actions, such as transfers of assets, (3) limiting the persons to whom transfers can be made, (4) requiring equal treatment of all potential recipients of transfers, and (5) requiring the agent to file regular accounts or other reports with third parties.  

4.  Naming Successor Agents.  Just as you may someday be unable to make financial and health-care decisions, there is always a possibility that the person you choose as your agent may become unavailable or unwilling to serve.  Make sure you deal with this possibility by appointing more than one agent, either jointly or as successor.  Also, consider giving your agent the power to appoint a successor or successors.

Conclusion.  The power of attorney may someday become your most important legal document.  A well-drafted power of attorney can be of inestimable value to you and your family.  An ill-considered document can lead to disaster.  If you underestimate the importance of this critical legal tool you and your family may someday pay a heavy price.