As an attorney who practices elder law, most people think that everyone I work with is, well “old.” And while I do work with the elderly, the fact is that most of the time it’s their adult children who call me when they don’t know what to do.
A typical first meeting may involve some version of the following. Daughter comes to see me, and tells me that her elderly mother (“Mom”) has been living alone ever since her father died. Mom has been very independent until recently, when Daughter began to notice some changes. At first, it seemed like ordinary old-age forgetfulness, but lately, Mom is struggling with everyday chores like paying bills, balancing her checkbook, and keeping up the house. Daughter wants to help Mom, but she’s not sure exactly what to do. As far as she knows, Mom hasn’t executed a power of attorney, last will and testament, or other planning documents.
In this case, Daughter has come to us in the nick of time. Even if Mom is starting to experience some cognitive decline, she may still be mentally competent to execute some simple but effective planning documents.
Most people I meet have heard of a power of attorney (“POA”) but don’t understand exactly how they function. They tell me that they need to get power of attorney “over” someone—but that’s not how it works. Instead, a POA must be voluntarily given by the person executing it (called the Principal) to the person receiving it, called the Agent.
In the example above, Mom could give Daughter her POA so long as she is mentally competent to understand what she is doing. Importantly, however, all POA’s are not created equal. One POA may grant an agent very broad authority to nearly anything the principal herself could do, while another may limit the agent’s authority to certain acts. It’s important to talk with your attorney to understand exactly what powers are being granted. If the POA is durable, Daughter can continue to manage Mom’s financial affairs, even if Mom later becomes legally incompetent.
We also commonly get questions about transferring assets. Clients are often concerned about getting a parent’s home or other assets transferred from the parents to the adult children in order to protect it. This is rarely a good idea.
It may seem obvious, but when a parent transfers assets to their children the parent no longer owns the asset. So what’s the risk, you ask? Consider this: What happens if one of the children file for bankruptcy? Files for divorce? What if one of them is sued?
You see, even if the entire family is on board, and even if the children are honest, caring people with good intentions, that may not be enough. Because the children are now the owners of their parent’s property, they have exposed the property to the risk that it could be used satisfy a child's creditors in bankruptcy, or that it could be divided in a child's divorce, or any number of risks. Does transferring assets to the children protect the elderly parent in these situations? The answer is no.
One more consideration: what if an elderly parent needs long-term care? If they have given away any assets at any time within five years before going into a nursing home, they could be harshly penalized and disqualified from receiving benefits that could otherwise be used to pay for the cost of that care.
You may already know that one month of nursing home care in Alabama currently costs about $5,500 per month. Most people quickly run out of money and wind up looking to Medicaid to pay for their care. Medicaid is a means-tested program, meaning that if you have more than $2,000, you won’t qualify. In addition, you can’t give away your assets in order to qualify.
For example, if Mom deeded her home to Daughter two years ago and needs to go to a nursing home today, Medicaid will review the last five years of her finances and see that transfer. Because you cannot give away assets and qualify for benefits, Medicaid will impose a penalty against Mom and disqualify her for a number of months based upon the value of the home. Ironically, had Mom kept the home, Medicaid rules would have permitted her to keep it as exempt property that does not count against her $2,000 asset limit, at least for a while.
Many adult children find it difficult to start a conversation about money with their parents, and vice versa. But remember this: you (and your siblings) will have to handle your parents’ affairs if the need arises. Don’t be afraid to step outside your comfort zone and have a difficult conversation today—you can thank yourself later.
This article was published in Boom! Magazine, June 2014 edition.