Are Your Estate Planning Documents Coordinated?

My Dad is somewhere between the” here and now” and not so much!  Sometimes he recognizes my brother and me and sometimes not.  Sometimes he discusses his finances with me and sometimes he has no idea what he owns or where he is. He owns a house with a mortgage of $250,000 and $500,000 in securities, all titled in the name of his Trust.  He lives in an assisted living facility.

I would like to be able to pay his bills and sell the house and qualify him for Medi-Cal benefits.  His primary care physician wrote a short letter stating that my Dad can no longer handle his financial affairs and that he is suffering from Alzheimer’s.  That apparently activated the power of attorney which authorizes me to pull assets out of the Trust.   I am told that the Trust and Power of Attorney don’t “coordinate.”  I am not sure what that means but the securities broker’s legal department said that I am not authorized to do anything with the Trust assets.

Can you explain this to me?

Daughter Watching Net Worth Diminishing Fast

Trust & Power of Attorney Coordination
Coordination Solutions
Use of Psychologist
Medi-Cal Exemption–House vs Proceeds
Getting Eligible
Call Us for a Complimentary Assessment

Dear Daughter:

Trust & Power of Attorney Coordination:  The coordination problem is one I see quite often.  There is a statute in California that requires the Trust to state that the holder of the power of attorney is authorized to take the actions stated in the power of attorney.  In other words, each document needs to recognize the other.  Many, many Trusts in California do not have that provision which has been required for the last several decades.  Often the problem is caused by non-lawyers writing Estate Planning documents (or actually, consumers believing that the local document preparation service/paralegal/form they found online is every bit as useful and effective as the one the attorney will do, but for many times the price quoted by the non-attorney).  Sometimes it is caused by an inexperienced attorney.  The result is that the holder of the power of attorney is authorized, for example, to pay bills from the assets of the disabled parent but is not authorized to touch assets in the Trust.  And, of course, that’s usually where the assets are “housed.”

Coordination Solutions:  So what’s the solution.  If your Dad can no longer handle his affairs there is often a section in the Trust that then disqualifies him from serving as the trustee/manager (I’m assuming that your Dad is the Trustee.)  If that is the case for your Dad’s Trust then that document should be submitted to the legal department alerting them to the relevant section of the Trust.  The effect of that section would be to have the first successor Trustee take over.  In most, but not all cases, that would be the holder of the power of attorney (i.e. you) and, voila, the problem is solved–as the trustee you can deal with the Trust assets. If no such competency section exists, then many brokerage firms would view your Dad as unavailable with the same result.  Of course, there is always the more expensive option of going to court to have the court declare that your Dad has been replaced by you as the trustee.

Use of Psychologist:  The picture of your Dad that you present suggests that he may still be mentally competent.  Just because the primary care physician said he was not (and that’s not exactly what he said) doesn’t mean that his declaration is binding or, even correct.  Physicains do not have the power to legally declare people mentally incompetent, only courts can do that.  Physicians merely express their opinion.  Opinions of others may differ or competency can be regained.  Often times we use a psychologist to render a report and opinion.  If the psychologist determines that your Dad is competent, I would rely on that as he is a specialist in the area (the physician was not) and his opinion was the more recent one.  If that is the case, your Dad could amend the Trust to add the missing coordination section.

Medi-Cal Exemption–House vs Proceeds:  Then there’s the Medi-Cal issue.  First, do NOT sell the house yet.  The residence (and his house is probably still viewed as his residence) is considered exempt from the Medi-Cal eligibility calculation, but in most cases the proceeds of the sale are not.  Selling the house will, therefore complicate the situation to no end.  It can eventually be sold, but only after it is transferred to you or a special Irrevocable Trust on your behalf.

Getting Eligible:  Next, you will need to figure out how to get his net worth down to the Medi-Cal limits.  That limit is probably $2000.  Assets can be spent down, given away, or invested into exempt or non countable assets.  Given away to you is the most obvious choice.  Depending on which Medi-Cal program is our focus, there are often penalties associated with giving away the assets.  That being said, there are methods of giving away the assets that would not cause any penalty or maybe only one month of penalty.

Call Us for a Complimentary Assessment:  I would recommend that you have an Attorney advise you, at least on this part, as Medi-Cal can get very complicated very quickly.  I’ve often said about these types of problems, there are always things that can be done—always.  Unless you wait until all the money is spent on care and it is gone–then there is nothing that can be done to save the assets.  Give us a call at 760-436-8832 for an assessment.  That assessment and first meeting are typically complimentary.