You and Will Robinson
In the late 1960s a popular television series was Lost in Space, a science fiction version of Swiss Family Robinson in which the Robinsons’ space ship wandered the galaxy after blasting off from Earth in the far off year of 1997. Among the cast was Guy Williams (Zorro without the mask) as Dr. John Robinson, June Lockhart (Lassie’s Mom) as his wife, Billy Mumy as their young son Will Robinson and Bob May as the Robot. Throughout the series’ run, Will Robinson seemed to be consistantly in danger. Fortunately, the Robot was always there to warn him of imminent peril. Unfortunately, the Robot knows nothing about Durable Powers of Attorney and legal planning, so I will take over and warn you when danger lurks in your legal affairs.
Danger, Will Robinson!
Some people think that a way to avoid having to do any planning, including executing a Durable Power of Attorney, is to have all assets jointly owned with a spouse or other person. This is a dangerous and inadequate course of action. Again, as I indicated in Chapter 1, it is important to heed the words the Boston College Law School professor used to say, “Stay out of expensive joints.”
This statement has many levels of meaning. On one level, my professor recognized that having all assets jointly held could result in higher estate taxes. It could also jeopardize those assets because the creditors of the joint owner of a bank account, for example, can reach the entire bank account—even if the joint owner whose name was added to the account never put any money into the bank account. In addition, with some jointly owned assets, the joint owner would not be able to deal with the assets in the event of an incapacity of the other joint owner. So, for instance, if one joint owner of real estate becomes incapacitated, you, the other joint owner, would not be able to sell that property on your own.
Danger, Will Robinson! Danger!
I have sometimes been asked if people can just go to a legal stationary store or go to the Internet and obtain a “standard” Durable Power of Attorney that they can do for themselves. My answer is a qualified yes in the sense that I also believe that you can take out your own appendix with a penknife if you so choose, but I would not recommend either course of action. In fact, you might do yourself more harm doing your own Durable Power of Attorney than you would doing your own surgery, although once again I do wish to firmly go on record as saying that I do not think you should do either (no lawsuits for me). Although I am not qualified to speak on the surgery, I am able to tell you why you should not do your own Durable Power of Attorney.
First, the laws that govern Durable Powers of Attorney vary from state to state, and you cannot be sure that the one you are using meets all of your state’s requirements. Second, I have seen many Durable Powers of Attorney that are just plain defective when it comes to issues such as dealing with the IRS or making gifts, which are two very important parts of a Durable Power of Attorney. And finally, a Durable Power of Attorney should be drafted to meet your own particular needs and desires when it comes to important matters such as gift-giving, to whom and with what limitations.
Oh, Will Robinson! Even More Danger!
Although many people have interpreted a broadly worded General Durable Power of Attorney to include the power to make gifts on behalf of the principal, many people would be wrong. In fact, the courts have uniformly rejected simple, broadly worded Durable Powers of Attorney that contained words to the effect that the agent was authorized to do “all that the principal might do” (a common catch-all phrase found in the boiler plate language of many Durable Powers of Attorney) such as authorizing the attorney-in-fact to make gifts on behalf of the principal. Courts that have dealt with this issue have generally required gift-giving powers to be specifically set out within the Durable Power of Attorney—which is a good thing because there are many ramifications to the ability to make gifts on behalf of someone else.
Income tax, estate tax and gift tax considerations should be a part of any Durable Power of Attorney decisions. Once again, what you do not know can sometimes hurt you or come back to bite you in the wallet. For example, if the person acting as the attorney-in-fact has an unlimited power to make gifts in any amounts to anyone at any time, the attorney-in-fact runs the risk of having his or her gifting powers be considered a “general power of appointment.” This could have serious tax consequences for the estate of an attorney-in-fact who predeceases the principal.
Gift-giving through a Durable Power of Attorney can be a most effective tool for Medicaid planning on behalf of a person who has accumulated assets over a lifetime but is in a position where all of those assets are in jeopardy (I’ll take potential financial ruin for $500, Alex) if the person is in need of expensive nursing home care. A carefully worked-out gift-giving program can preserve family assets while at the same time hastening eligibility of the principal for nursing home benefits through Medicaid. Once again, the wording of the gift-giving power to enable the agent to do this kind of planning should be carefully enumerated within the Durable Power of Attorney.
Using a technique called “half-a-loaf” giving, a person in need of long-term care in a nursing home can preserve assets that would otherwise have to be spent down to the Medicaid eligibility level of $2,000 in order to qualify for Medicaid. This technique is described in detail in Chapter 13.