Update: The implementation date for the "look back" has been extended from July 1, 2021…
If you are thinking about planning for your care or the care of a member of your family the Power of Attorney is a fundamental document.
Let’s start with a brief explanation of the power of attorney. This is a legal document where someone (the “principal”) gives authority to someone else (the “agent”) to do something on behalf of the principal. The scope of authority granted to the agent might be very large (a “general power of attorney”), or the agent might only be given the power to carry out a specific task or a few specific tasks (a “limited power of attorney”).
When a principal executes a power of attorney, he is not giving up his own authority or power to do the same things that he is allowing the agent to do. In effect, a dual authority is created: either the principal can act for himself, or the agent can act on the principal’s behalf in any situation where the agent has been given the power to act. However, the principal retains one power that the agent will never have: the power to revoke the power of attorney. Also, every power of attorney is automatically revoked upon the death of the principal.
A further important consideration is whether the power of attorney should be “durable.” A durable power of attorney is one that remains in effect even if the principal should lose mental capacity. When someone is affected by Alzheimer’s Disease or dementia, or another condition that affects mental capacity, a durable power of attorney allows the agent to continue to manage the principal’s affairs. It is rarely a good decision to sign a power of attorney that is not durable. Otherwise, a family member or friend would have to petition a Court to appoint a guardian for that person, which often is an expensive and frustrating experience that could have easily been avoided.
Once in a while, we will be asked whether it is possible to have the power of attorney become effective only if and when the principal loses mental capacity. This is called a “springing” power of attorney. While it is possible, we do not recommend it. The problem is: how do you know if or when the principal has lost mental capacity, and, more importantly, who decides? These issues can be contentious, and the matter may wind up in court. Even if the matter is not contentious, third parties, such as financial institutions, may be reluctant to accept the power of attorney without a court order.
Should your power of attorney be general or limited? Let’s start with the circumstances where a limited power of attorney would be best. Typically, the limited power of attorney would be used where the principal would like the agent to carry out a specific task or function. For example, if you are selling your home but have to be out of town on the date that the closing is scheduled, you might give a limited power of attorney to a close friend or business associate to sign the necessary papers for you at the closing. Another example — if a family member is undergoing surgery, she might want to give you a limited power of attorney so that you could pay her bills while she is in the hospital. In cases such as these, there is no need for the agent to have unlimited powers to do anything and everything that the principal could do. The limited power of attorney is the perfect solution.
The general power of attorney is a much more powerful legal document. It gives the agent virtually unlimited powers over the principal’s money and property, and affairs. Of course, the agent is legally required to act in the best interests of the principal, but obviously the choice of an appropriate and trustworthy agent is extremely important.
In New York, the power of the agent to make gifts is given special attention and treatment. The principal can execute a separate “gift rider” to the power of attorney that gives the agent the authority to make gifts and transfers of the principal’s money and property to others, including to the agent himself or herself.
The general power of attorney, and the gift rider, often has a critical role in Elder Law planning. In order to implement a health care plan that involves qualifying for Medicaid, it is often necessary to transfer ownership of the principal’s money and property to family members or to a trust. In many cases, the principal is losing, or has lost, mental capacity. Without a durable general power of attorney with gifting powers, nobody would be in a position to help the principal obtain the health care – particularly the long-term care – that he or she needs.
While the power of attorney is fairly straightforward in concept, in practice it is a complicated document that merits careful consideration. What all the different powers mean and whether they should be granted, how and when the document should be signed, where it should be kept, to whom it should be given, are all important issues. Most people will find it advantageous to consult an attorney before signing one. If the power of attorney is being contemplated as part of health care planning, then it would be prudent to have the document prepared by an Elder Law attorney, since numerous modifications of the “standard form” will likely be needed to allow the agent to implement the plan.
Lamson & Cutner welcomes your comments, questions, and feedback regardingThe Elder Law Exchange newsletter. Please feel free to contact us anytime at firstname.lastname@example.org.