This post continues our series about common problems or issues that arise in the context of Estate Planning. Part one can be found here.

In this post, I want to discuss two common, related problems that occur far more frequently than they should.  This is the use or misuse of the Wisconsin Statutory Health Care Power of Attorney and Durable Power of Attorney for finances.

From the attorney’s perspective, what often will happen is that we will meet with client, go through a thorough estate analysis, raise questions and get answers regarding the individual or couple’s choice of agents under both Health Care Power of Attorney as well as the Financial Power of Attorney.  Sometimes these discussions can be fairly brief, but in many cases, it can be quite thorough. 

At the conclusion and as part of the estate planning process, we draft the Health Care Power of Attorney and Financial Power of Attorney, send it to the client to review; they approve it, and eventually come back to the office to sign and finalize.  We will then take care of contacting the agents, to make sure they are aware that they have been named as agents, have them sign the proper forms acknowledging that they are aware that they are agents, and proceed to finish the Estate Plan. 

However, we later find that in an emergency, or sometimes not even in an emergency, the client winds up in a doctor’s office or the hospital and some well-meaning assistant, social worker, nurse, etc., will thrust a Health Care Power of Attorney in front of the individual, and say let’s fill this out and sign here.  The client does. 

What they have unwittingly done is revoke the Health Care Power of Attorney that was painstakingly produced at the attorney’s office.  They may have different choices of agents and more commonly than not, they leave large blanks in the document, because they never discussed this. 

Even worse, with the Statutory Financial Power of Attorney, much the same thing can happen.  Except now it is not at a hospital or clinic, but rather at the insurance agent’s office or a financial advisor, possibly a bank, and someone produces the blank Wisconsin Statutory Power of Attorney, and again it gets quickly signed and unwittingly revokes the one produced at the attorney’s office.  

To make this even worse, in my own opinion, the Statutory Financial Power of Attorney in Wisconsin is largely a useless document, because I have seen far too many cases where third parties, such as banks, insurance companies, or other financial institutions, will not accept the Wisconsin Statutory Power of Attorney, and now you have a document that is worthless, except that it revoked the earlier one which likely would have worked.
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Then, as if this were not bad enough, sometimes these freely available Statutory Financial Powers of Attorney are used by unscrupulous individuals, who will have a parent who may be vulnerable to influence or threats or intimidation, where they sign such a document, authorizing the unscrupulous person to have access to their accounts, or even to gift money in the accounts to themselves.  If you think it doesn’t happen here, you are wrong.  There have been numerous cases right here in the Chippewa Valley where elderly folks have been cheated out of hundreds of thousands of dollars by unscrupulous agents who employ these same tactics. 

With careful Medicaid planning, you may be able to preserve some of your estate for your children or other heirs while meeting Medicaid's low asset limit.

The problem with transferring assets is that you have given them away. You no longer control them, and even a trusted child or other relative may lose them. A safer approach is to put them in an irrevocable trust. A trust is a legal entity under which one person -- the "trustee" -- holds legal title to property for the benefit of others -- the "beneficiaries." The trustee must follow the rules provided in the trust instrument. Whether trust assets are counted against Medicaid's resource limits depends on the terms of the trust and who created it.

An "irrevocable" trust is one that cannot be changed after it has been created. In most cases, this type of trust is drafted so that the income is payable to you (the person establishing the trust, called the "grantor") for life, and the principal cannot be applied to benefit you or your spouse. At your death the principal is paid to your heirs. This way, the funds in the trust are protected and you can use the income for your living expenses. For Medicaid purposes, the principal in such trusts is not counted as a resource, provided the trustee cannot pay it to you or your spouse for either of your benefits. However, if you do move to a nursing home, the trust income will have to go to the nursing home.

You should be aware of the drawbacks to such an arrangement. It is very rigid, so you cannot gain access to the trust funds even if you need them for some other purpose. For this reason, you should always leave an ample cushion of ready funds outside the trust.
You may also choose to place property in a trust from which even payments of income to you or your spouse cannot be made. Instead, the trust may be set up for the benefit of your children, or others. These beneficiaries may, at their discretion, return the favor by using the property for your benefit if necessary. However, there is no legal requirement that they do so.

One advantage of these trusts is that if they contain property that has increased in value, such as real estate or stock, you (the grantor) can retain a "special testamentary power of appointment" so that the beneficiaries receive the property with a step-up in basis at your death. This will also prevent the need to file a gift tax return upon the funding of the trust.
Remember, funding an irrevocable trust within the five years prior to applying for Medicaid (the "look-back period") may result in a period of ineligibility. The actual period of ineligibility depends on the amount transferred to the trust. 

If you have questions regarding your Trust or any elements of your Estate Plan, please contact our office . 

January is a good month to organize, particularly your finances, as January is typically the month when most people receive their 1099s showing interest or dividend income, year end statements showing balances in all your accounts, and new Social Security statements showing any adjustment in monthly checks.  This makes January also a good month to make sure your Estate Planning documents are up to date.
As part of our Estate Planning documents, we include an organizer, where you can keep track for your family of where you have accounts, who the contact person is, addresses, and approximate balances. We have heard back from many people that this has been very valuable in administering an estate or trust when that time comes.  However, it is only valuable if it is up to date and accurate.
Another common thing that some people do is to create an annual spreadsheet, showing changes in accounts, from year to year, and increases and decreases, or other changes. 
If you want to review your estate plan, please call our office to schedule a time. For convenience, we are doing appointments by telephone, Zoom calls, or in person.