Betty Jones, a 75 year old suffering Alzheimer’s, was recently hospitalized after a fall. She broke her hip and is no longer capable, either physically or mentally, of taking care of herself or her finances. Medicare has covered most of her hospitalization and medical bills but there is a balance of a few thousand dollars and the hospital wants to discharge her to a nursing home for her continued care. She owns a one-family home, has $150,000 in the bank and $300,000 in investments. She did no estate planning, has no Will, gave no one a Power of Attorney or a Health Care Proxy. Her husband passed away several years ago and she has two children, Bobby and Karen, who have no access to any of her accounts and do not have the personal resources to pay for her ongoing care.
Unfortunately, this is not an uncommon situation. Under these circumstances, the only avenue that Betty’s children have is to bring a petition in Court for Guardianship under Article 81 of the Mental Hygiene Law. Assuming that either of the children wish to take on this responsibility, an attorney would need to be retained, support for the petition would need to be submitted, and a Court Evaluator will need to be assigned. This process takes time, money, and would be unnecessary if a Durable Power of Attorney was executed by Betty before the Alzheimer’s had progressed.
General, Durable and Limited Powers of Attorney
A Power of Attorney (POA) is a legal document that gives a person, known as the Agent, the power to perform financial and property transactions on behalf of the Principal (person giving authority). Both the Principal and the Agent must sign it before a notary for it to take effect. There are three basic types:
- General (non-durable) Power of Attorney
- Durable Power of Attorney
- Limited/Specific Power of Attorney
A Limited Power of Attorney (sometime called Specific) is executed for very specific transactions, like transferring a particular asset or giving access to a bank account. A General Power of Attorney may grant broad powers to the agent over all financial and property decisions. However, the powers granted would end if the Principal becomes mentally incapable of making those decision for herself. A Durable Power of Attorney, as opposed to a General Power of Attorney, remains in effect even after the Principal becomes mentally incapacitated. Obviously, to be effective, the Power of Attorney would need to be durable in Betty’s case.
Statutory Gift Rider
A Statutory Gift Rider (SGR) is a document that supplements the Power of Attorney to authorize large gift transactions. For it to be effective, it must be signed in front of two witnesses at the same time the POA is signed. Without a Statutory Gift Rider, agents would be limited to gifts of $500 and could not properly carry out most transactions necessary to preserve maximum assets as part of a plan to qualify for Medicaid. Betty would be best served by a properly fashioned Durable Power of Attorney and Statutory Gift Rider.
It is important to point out that there were several changes that became effective in September 2009 to the laws governing POAs and some additional technical corrections in September 2010. If you have a Power of Attorney that was prepared before then, I am able to review it to make sure it is still valid and serves your needs going forward. Also remember that Estate Plans should be reviewed every 3-4 years.