Not What Daughter Expected

Power of Attorney Not What Daughter Expected

Introduction
Living Trust vs Living Trust Package
Medi-Cal Recovery and the House
Solution to Medi-Cal Recovery
Statutory Financial Powers of Attorney
Advantages and Disadvantages of Statutory Form
Customization for Gift Giving Power
What Attorney Should Cover in Interview
Conclusion

Dear Mr. Miller:
Introduction: Last month my father had a stroke. He’s recovered now, to some extent. He can talk and walk, but he has no ability to respond to what I am saying or actually even carry on a conversation. When he’s talking, it’s like he’s talking to an imaginary friend. And when I talk it is like he really doesn’t even know I am talking.

His physician tells me he needs to be in a skilled nursing facility. I have checked the pricing and for his care it will be close to $10,000 per month. He has income of about $1500 per month so that is going to be a problem. A friend told me to check out Medi-Cal. It seems Medi-Cal will cover the difference but after Dad passes, they are going to want their money back. And that will be taken out of his only asset–his $250,000 Fresno house.

I want to protect the house so that it goes to me and my sister–that is what Dad would have wanted. If he knew it was going to the state he’d have a heart attack. I saw an attorney yesterday. He looked at Dad’s Living Trust (a large notebook filled with various documents) and said the financial power of attorney was just a basic form and didn’t give me the authority I needed to protect the house.

How can that be? It was prepared by an attorney, signed and notarized!
Scared to Death Daughter!

Dear Scared:
Living Trust vs Living Trust Package: Let’s define our terms to keep things clear. What consumers call a Living Trust is what many attorneys call a Living Trust package. So there is often a disconnect in the communication between the two. In other words, in the notebook there are a number of documents. One, usually the fattest, is the actual Living Trust. Another one is the Financial Power of Attorney. Other ancillary documents such as the Will or Health Care Directive make up the rest of the notebook. So when an attorney says “Living Trust” he is typically referring to the actual single document in the notebook that is the Living Trust, not the entire notebook

Medi-Cal Recovery and the House: You are correct about the house. Although the personal residence is exempt from Medi-Cal qualification, it is not exempt from Medi-Cal recovery (i.e. Medi-Cal’s right to get their money back from the estate of the deceased claimant). There are exceptions if there is a surviving spouse and in a few other cases that don’t seem to apply to your situation.

Solution to Medi-Cal Recovery: In order to protect the house, it is typically gifted away from the ill person’s ownership. (There are a number of potential potholes here so any reader of this column should consult an attorney before taking any action.) But in order to gift it away (to you and your sister or to a special type of capital gain income tax saving trust) your Dad would need mental competence, and from your description, he clearly is without that, or someone with legal authority to act for him. This legal authority is usually given in the power of attorney document, sometimes in the Living Trust document.

Statutory Financial Powers of Attorney: In California there are a variety of financial powers of attorney. The one that your Dad probably has is referred to as the Statutory Form Power of Attorney. That means that the language used in the document is substantially the same as the California statute authorizing this form. There are two types: the short form and the long form. They both have the same powers and effect. The short form has check boxes for each power being granted. Essentially, each check box grants a particular power as described in the statute. The long form simply takes the descriptions in the statutes and repeats them in the document, verbatim.

Advantages and Disadvantages of Statutory Form: The advantage of the short form is, obviously, that it is short and, at least in general, easily understood by a non-lawyer. The advantage of the long form is that one does not have to review the California statute to see the details of the particular power involved. The disadvantage of both, and here is your problem, is that neither grants the power holder the authority to give away the principal’s (i.e. your Dad’s) assets. In other words, neither authorizes any substantial gift giving. Worse, there is a power in the statutory form entitled “Estate, Trust and other Beneficiary Transactions” that, for the consumer, gives the incorrect impression that it grants gift giving power. It does not! Doubly worse, at least a few attorneys don’t know that impression is inaccurate!

Customization for Gift Giving Power: Either form can be customized to grant gift giving power but, at least in the ones I have reviewed, they rarely do. And for those that do, they rarely give the power holder the authority to gift to himself (often called a “self dealing” clause). Without both of these clauses, you cannot gift any part of the house to yourself. With just the gift giving power you could gift to your sister but not yourself.

What Attorney Should Cover in Interview: Now before you get all up in arms about how this attorney was just too lazy to create a lawyer drawn document, keep in mind that the statutory forms are quite effective for what they are. That being said there should always be (at least in my opinion) a discussion by the attorney with elderly (or even middle aged clients) about Medi-Cal. If the client declines that type of arrangement in his power of attorney, then so be it. I don’t know what occurred between the attorney and your Dad so I can’t comment on that issue.

Conclusion: You might also want to check to see if any of the necessary powers are part of the Living Trust. If you strike out there, then a court procedure is also a possibility. Speak with an attorney knowledgeable in estate planning and Medi-Cal (also known as Elder Law).

9/29/2013