Acting as Mom’s Power of Attorney – Did You Do the Most Important Thing First?

Limitations
Definitions
Trigger
Example

I’m my Mom’s Power of Attorney and I want to make gifts on her behalf to myself and my three sisters. This will help her get qualified for Medi-Cal. I’m my Mom’s Power of Attorney—I can do anything for her now—Right???

Limitations: Wrong! Your powers to act on behalf of your Mom are limited by what is authorized in the Power of Attorney document (POA). Further, whether you have any power at all may hinge on if Mom has lost her mental capacity. One more thing, if what you are trying to do will benefit you (such as giving yourself a gift) you are not authorized to do so unless the POA specifically permits “self dealing.” And if you take any action that is not allowed, you may have to pay back your Mom or your brothers and sisters after Mom passes. So a careful reading of the POA is important for your own financial health.

Definitions: First, some definitions: the holder of the power (you) is called the agent or attorney-in-fact; the signer of the POA (your Mom) is called the principal. The power of attorney can either be durable, which means that it is effective even if the principal loses mental capacity or it can be non-durable. A durable document is either a springing type (it has no effect until mental capacity is lost) or immediate (it is effective as soon as signed and continues in effect even after mental capacity is lost).

Trigger: Often times, the POA has some triggering mechanism set forth in the language. When whatever the trigger is occurs (i.e. a physician certifying to the principal’s incompetence) the POA becomes effective or a particular power in the POA becomes effective. Most of the time we are contacted by people who want to take action before the trigger has occurred. This is often well meaning children. Although legally this is often prohibited, in a family in which everyone gets along, it may not be a big problem. On the other hand, if Medi-Cal or tax planning is the goal, it is always possible that the Medi-Cal authorities or the IRS will challenge what was done. If action was taken without authorization, the best laid plans may simply fall apart.

Example: For example, there are net worth limits to qualify for Medi-Cal; for a single person it is $2000. Let’s say you are giving away her assets (assume $20,000) to bring her net worth down. You know that there are penalties for making these transfers (subject to Medi-Cal exemptions) but since there is no intention to apply for Medi-Cal for 6 months down the road, the penalty will have run out by then and she will meet the requirements. If you don’t have the authority to take these actions, when you apply for Medi-Cal for her, the authorities may take the position that she still has $20,000 and deny her application. Now you’ll have to give away the $20,000 and suffer the penalty or spend the money in order to have Mom qualify. A loss of up to the entire $20,000. (Please do not rely on this example for your own planning as even a slight change in the fact pattern could create a completely different result.)

8/2011