Using a Power of Attorney in Medicaid Planning
The Aftermath of In Re Keri
Dateline: September, 2003
By: Deirdre R. Wheatley-Liss, Esq.
Overview:
A recent New Jersey Appellate Court decision, In Re Keri1 (356 N.J. Super. 170, 811 A.2d 942), highlights the need to have a comprehensive General Durable Power of Attorney to preserve the option to engage in Medicaid Planning.
The Need for a Comprehensive General Durable Power of Attorney:
In its most simple terms, a General Durable Power of Attorney ("GDPOA") is a document where you (the "power-giver") name a person (your "attorney-in-fact") to make financial decisions for you. By being "durable", the GDPOA continues to be effective even if you become incapacitated. Essentially, a GDPOA allows another person or persons to step into your shoes for decision-making purposes with reference to any and all of your financial affairs.
While the concept of a GDPOA is straightforward, in order for a GDPOA to be valuable in practice, it must be carefully drafted to cover likely contingencies. A GDPOA will always start with a broad grant of power such as "I give my attorney-in-fact the power to do any and everything with my assets that I may have done with my assets". However, a comprehensive GDPOA will not stop there; instead, it will go on to list specified things that you your attorney-in-fact may do with your assets in addition to the broad grant of power. Since the GDPOA is likely to be used when you're no longer able to express your wishes and desires, the courts will strictly interpret the language of your GDPOA. A court may find that if you don't enumerate a specified act that your attorney-in-fact can take, then you did not intend that your attorney-in-fact have that power. As an example of this, in Keri the GDPOA granted the attorney-in-fact/guardian the power to apply for Medicaid, but did not specify that the attorney-in-fact/guardian had the power to engage in Medicaid planning or to make gifts to carry out a Medicaid plan. Accordingly, the Court found that the attorney-in-fact did not have the power to make gifts necessary to effectuate the Medicaid planning.
Using a GDPOA in Medicaid Planning:
Medicaid planning is a type of asset protection planning that many people enter into to protect their assets from the costs of nursing home care. Medicaid planning typically involves categorizing assets as being "available" or "unavailable" to be spent on nursing home care, and attempting to minimize the "available" assets, many times by transferring those assets to the younger generation. A comprehensive GDPOA is a key component to Medicaid planning, because it allows your attorney-in-fact to investigate and carry out a Medicaid plan, if that is your desire.
Many people recognize that the time that they may most need to engage in Medicaid planning is when they will be least able to do so due to incapacity. Accordingly, you can plan ahead by executing a GDPOA that gives your attorney-in-fact the right to investigate and carry out Medicaid planning for you. However, as the Keri decision underscores, in order to have this plan be effective, your GDPOA must contain provisions that a court will allow your attorney-in-fact to engage in Medicaid planning.
The Keri Decision:
In Keri, Richard Keri, guardian of his mother, Mildred Keri, requested permission from the court to engage in Medicaid planning on his mother's behalf. More specifically, Richard asked to sell Mildred's home, transfer $90,000 of the proceeds from the sale to himself and his brother, and leave $72,000 in Mildred's name, which should be sufficient to pay for her nursing home care during the period of Medicaid ineligibility resulting from the transfer.
Mildred had executed a GDPOA while she was still competent. Although the GDPOA specifically authorize Richard to apply for Medicaid on Mildred's behalf, it did not specifically empower him as her attorney-in-fact to make gifts to effectuate Medicaid Planning. The New Jersey courts have previously decided that as a general rule the granting of a GDPOA does not in itself give the attorney-in-fact the power make gifts.2 However, the courts have found that a guardian could make gifts on behalf of a ward to decrease estate tax liability, which is a similar situation to making gifts to decrease nursing home cost liability. The standard for this is set forth in In re Trott, 118 N.J. Super. 436, 440 (Ch. Div. 1972), finding that such gifts to reduce estate taxes would be permissible by a Guardian if they meet the following criteria:
" (1) the mental and physical condition of the
incompetent are such that the possibility of her restoration to competency is
virtually nonexistent; (2) the assets of the estate of the incompetent remaining
after the consummation of the proposed gifts are such that, in the light of her
life expectancy and her present condition of health, they are more than adequate
to meet all of her needs in the style and comfort in which she now is (and since
the onset of her incompetency has been) maintained, giving due consideration to
all normal contingencies; (3) the donees constitute the natural objects of the
bounty of the incompetent . . . ; (4) the transfer will benefit and advantage
the estate of the incompetent by a reduction of death taxes; (5) there is no
substantial evidence that the incompetent, as a reasonably prudent person,
would, if competent, not make the gifts proposed in order to effectuate a saving
of death taxes." [Id. at 442-44.]
The Keri Court found that a reasonable person might very well not want to make gifts to the extent that a person would impoverish himself or herself and need to rely on public benefits to take care of his or her needs. Thus, the court ruled that Richard, as guardian, was not empowered to make gifts to implement Medicaid planning for his mother.
What a GDPOA needs to include in light of Keri:
Keri gives us a roadmap of what an attorney-in-fact needs to be authorized to do in order to have the ability to engage in Medicaid planning should the need arise. The GDPOA needs to enumerate the following powers of the attorney-in-fact:
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To make gifts to the persons benefiting from the power-giver's existing estate plan, including the attorney-in-fact
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To engage in Medicaid planning/asset protection planning
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To make transfers to further a Medicaid plan, so long as the power-giver's needs continue to be provided for during any penalty period brought on as a result of a transfer
Summary:
Keri highlights how a general grant of power in a GDPOA is not enough; instead, a comprehensive GDPOA needs to go beyond the general grant of power and specifically enumerate those powers that the attorney-in-fact will need to carry out the power-giver's intentions. We recommend that all of our clients update their GDPOA in light of Keri.
If you have any questions about whether your existing GDPOA gives your attorney-in-fact enough power and flexibility to engage in Medicaid planning on your behalf, please contact either Shareholder of our Tax, Trusts and Estates and Elder Law Department: Henry H. Fein at hfein@feinsuch.com or Deirdre R. Wheatley-Liss at dwheatley@feinsuch.com.
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1 In Re Keri (356 N.J. Super. 170, 811 A.2d 942).
This Article is a service of the Tax, Trusts and Estates and Elder Law Department of Fein, Such, Kahn & Shepard, P.C., 7 Century Drive, Suite 201, Parsippany, NJ 07960. Phone: 973-538-4700. Website: www.feinsuch.com. It does not constitute legal advice nor create an attorney-client relationship. For more information contact Shareholder Deirdre R. Wheatley-Liss at dwheatley@feinsuch.com.
© 2003, Fein, Such, Kahn & Shepard, P.C., all rights reserved. Permission is granted to reproduce and redistribute this article so long as (i) the entire article, including all headings and the copyright notice are included in the reproduction, and (ii) no fee or other charge is imposed.