A Durable Power of Attorney is a powerful – and a dangerous – document. While it does not deprive you of access to your funds, it gives the person you name equal access. The Texas Estates Code requires that that person report to you and provide an accounting. It allows your beneficiaries or heirs to ask the local probate court to investigate what your agent is doing. But that is rather like locking the barn door after the horses have flown.
What can you do to make sure that they do not get out of the barn in the first place?
Choosing the right agent
The most critical step you can take is to choose the right person. Most people choose their spouse and, after their spouse, their child. Is that really the best choice?
Your spouse may rely on you for big financial decisions or for balancing the checkbook and preparing the tax returns. Your spouse is probably similar to you in age, which means that he or she will be experiencing normal cognitive decline at about the same time you do. All of us, even if we do not develop a dementia, start to lose the ability to make or understand complex plans or to do mathematics at age 53, while we are still gainfully employed. The risk of dementia doubles every five years beginning at age 65. By 85, half of us are experiencing dementia.
Your child may seem like a good choice today: stable, responsible and caring; financially knowledgeable and willing to seek financial and legal advice. But even if all these things are true today, your child will likely be experiencing normal cognitive decline at the time you need to rely on them as your agent. Your child’s situation will also change. Your child may lose their job or see their business fail. Your child may get divorced, or wish they were. Your child or their spouse may become ill. Your grandchildren may develop special needs or need money for college, for a wedding, for downpayment on a home, to start a business.
Most of us trust family to act in our best interest and are very reluctant to share financial information, let alone decision-making, with outsiders even if we have a tax preparer or CPA, Certified Financial Planner or Registered Investment Adviser.
Some of us might prefer co-agents, at least for large transactions. But banks and other financial institutions balk at this.
Maintaining control: restrictions and protections
Another approach might be to require accountings to be made, on request, to our tax preparer, financial advisor, successor agents, and others. This may keep our agent on his toes. It may stop more than one horse getting out of the barn. If we name a child as agent but name our other children as people who can require an accounting, it may also forestall family disputes and a contested guardianship application. Few people realize how much long-term care actually costs.
We can also include broad gifting powers for Medicaid or tax planning while limiting them for anything else. Broad Medicaid gifting powers will allow our agent to sign a Lady Bird Deed (formally called a General Warranty Deed Reserving an Extended Life Estate) exempting our home from probate and, in Texas, from Medicaid Estate Recovery. Broad Medicaid gifting powers will allow our agent to sign a Marital Property Agreement, transferring assets to our spouse to help us qualify financially for Medicaid home health or nursing home Medicaid. Limiting other gifting will prevent the common confusion of the amount which can be gifted without incurring gift tax ($17,000/year/person) with the amount which can be gifted or otherwise transferred for less than fair market value in the five years before applying for Medicaid (a total of less than $200 in any given month).
We can also restrict the agent from making changes to our estate plan except for Medicaid or tax planning.
We can protect ourselves and our agent from their cognitive decline by allowing others we name to require them to have an exam and replacing them if they decline.
We need the power of a Durable Power of Attorney. We also need protections.
Elder law attorney, Terry Garrett, CELA, is a member of the National Academy of Elder Law Attorneys and is an Approved Guardianship Attorney. She assists people in elder law, estate and special needs planning, guardianship and settling estates. She graduated with honors from Cornell University. She was on the Dean’s List at Wharton Business School. She earned her J.D. at Columbia Law School, receiving the Parker Award and a Mellon Fellowship.
