I’m my Mom’s Power of Attorney and I want to make gifts on her
behalf to myself and my three sisters. This will help her get
qualified for Medi-Cal. I’m my Mom’s Power of Attorney—I can do
anything for her now—Right???
Limitations: Wrong! Your powers to
act on behalf of your Mom are limited by what is authorized in the
Power of Attorney document (POA). (This is why we suggest that
POA’s be reviewed periodically.) Further, whether you have any
power at all may hinge on if Mom has lost her mental capacity. One
more thing, if what you are trying to do will benefit you (such as
giving yourself a gift) you are not authorized to do so unless the
POA specifically permits “self dealing.” And if you take any action
that is not allowed, you may have to pay back your Mom or your
brothers and sisters after Mom passes. So a careful reading of the
POA is important for your own financial health.
Definitions: First, some
definitions: the holder of the power (you) is called the agent or
attorney-in-fact; the signer of the POA (your Mom) is called the
principal. The power of attorney can either be durable, which means
that it is effective even if the principal loses mental capacity or
it can be non-durable. A durable document is either a springing type
(it has no effect until mental capacity is lost) or immediate (it is
effective as soon as signed and continues in effect even after
mental capacity is lost).
Trigger: Often times, the POA has some
triggering mechanism set forth in the language. When whatever the
trigger is occurs (i.e. a physician certifying to the principal’s
incompetence) the POA becomes effective or a particular power in the
POA becomes effective. Most of the time we are contacted by people
who want to take action before the trigger has occurred. This is
often well meaning children. Although legally this is often
prohibited, in a family in which everyone gets along, it may not be
a big problem. On the other hand, if Medi-Cal or tax planning is the
goal, it is always possible that the Medi-Cal authorities or the IRS
will challenge what was done. If action was taken without
authorization, the best laid plans may simply fall apart.
Example: For example, there are net
worth limits to
qualify for Medi-Cal; for a single person it is $2000. Let’s say
you are giving away her assets (assume $20,000) to bring her net
worth down. You know that there are penalties for making these
transfers (subject to
Medi-Cal exemptions) but since there is no intention to apply
for Medi-Cal for 6 months down the road, the penalty will have run
out by then and she will meet the requirements. If you don’t have
the authority to take these actions, when you apply for Medi-Cal for
her, the authorities may take the position that she still has
$20,000 and deny her application. Now you’ll have to give away the
$20,000 and suffer the penalty or spend the money in order to have
Mom qualify. A loss of up to the entire $20,000. (Please do not rely
on this example for your own planning as even a slight change in the
fact pattern could create a completely different result.)
Just one more reason to read the document carefully or consult your
attorney before taking action.
