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Estate Planning: Everyone Needs it!

Estate Planning

The other day, I met with an elderly client who needed help getting his wife, who has dementia, financially qualified to receive MassHealth benefits in order to pay for PACE. PACE, Programs of All-inclusive Care for the Elderly, is a day care program that provides a team of professionals to assist people who need help with two or more Activities of Daily Living (ADLs) such as mobility and feeding.

It was urgent that we get his wife qualified as soon as possible because he could no longer provide all the help and supervision she needed and still keep her at home.  He was exhausted.
In order to financially qualify for MassHealth, his wife could only have assets valued at less than $2,000.00, plus her home. The MassHealth rules permit her to transfer her excess assets to her spouse.  Simple enough.  She had stock in her name alone that had to be transferred to her husband so she could qualify.

Because she no longer understands what she is signing, her husband attempted to use his wife's durable power of attorney (DPA), which named him as her agent, to sign the necessary documents so the stock could be transferred to him.

Unfortunately, the DPA did not have a paragraph permitting her agent, her spouse, to gift to himself. And although the DPA permitted gifts to others, they could only be for estate tax purposes, a very narrow exception. The DPA was useless. Normally at this point, a court proceeding known as a conservatorship has to be commenced when the person with dementia has no DPA or has a defective DPA, as in this case. A conservatorship requires court attendance, is time consuming and often costly. After a great deal of effort we avoided having to file a conservatorship, but the solution required the liquidation of the stock, rather than a simple transfer of ownership to the husband.

The manner in which the DPA was drafted caused a second hardship for the husband. His wife's DPA was "springing" and therefore not immediately effective when signed. A springing DPA is activated, springs alive, only if a physician's letter states that the person is no longer able to understand what he or she is signing. This physician's letter must be provided to third parties along with the springing DPA, or the DPA will not be honored.

A well-drafted DPA permits the agent to gift to himself or herself without restriction. Why?  Because gifting to a spouse is an important tool in qualifying someone for public benefits, especially MassHealth, which requires the applicant to have $2,000.00 or less in assets. And, in this example, the agent, the husband, would typically be the likely recipient of such gifts.
I always urge my clients to avoid the springing type of DPA, but not only so the step requiring the physician's letter can be skipped.  There is a more troublesome situation, what I call "the great gray", where the person is mentally competent, but his or her behavior is financially irresponsible. I often see the scenario in which a person who is mentally slipping, but competent, can suffer personality changes or even turn ornery, for example, refusing to pay the heating and telephone bills. If elder protective services is called for assistance, the person is immediately evaluated. If the person is deemed competent, which frequently occurs, that person has the right to stay where they are and continue to be financially irresponsible.
On the other hand, if the DPA is effective when signed, no physician's letter is required. The agent can gently "work with" the mentally slipping parent, for example, and pay the bills the parent is refusing to pay.

The DPA should have the "kitchen sink" of powers in it, meaning the DPA allows the agent to sign any and all legal, banking, and investment documents that may ever be required. If the DPA does not list a particular power, the third party, for example the banker or stockbroker, will not honor the DPA and court involvement will usually be necessary.
However, just because the “kitchen sink” of powers is listed in an immediately effective DPA does not give the agent blanket permission to use any or all of the powers, ever. The agent is a "fiduciary", a trusted person who is legally obligated to use the appropriate listed powers in the DPA only when necessary for the financial protection and benefit of the person who signed the DPA.


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