Attorney At Law: Durable Power of Attorney — To gift or not to gift

By Nancy Burner, Esq.

A Durable Power of Attorney (“DPOA”) is a statutory form that enables a person to empower a loved one or trusted individual to manage finances and property on their behalf. The concept is, even if one lacks legal capacity to handle their own financial and business affairs, their appointed agent will be able to use the document to access bank accounts, sign checks, pay bills, and carry out essential estate planning for Medicaid asset protection purposes. Note that not all powers of attorney are the same, the particular powers that the agent will have will depend on how the document is drafted.

As long-term care, including home care and nursing home care, is not covered by health insurance, many people look to Medicaid as a pay source. Medicaid, however, is a means- based program for which qualification requires an individual prove they have no more than $16,800 in assets (in 2022). Further, there is a 5-year lookback period for nursing home Medicaid. This means that upon application, there is a scrutiny of the prior five years of the financial life of the applicant and their spouse, looking for any assets gifted within the 5 years prior to applying. While there are certain allowable or exempt transfers, all other transfers will result in a “penalty period,” a period of time during which Medicaid will not assist with the costs of care.

Fortunately, there are several exempt transfers that do not incur a penalty period, the most common being a transfer of assets to one’s spouse. Thus, if one urgently needs nursing home care, but has assets above the Medicaid limit, they can transfer assets to their spouse to bring themselves under the resource limit to qualify for Medicaid without penalty. In certain circumstances, assets can also be transferred to individuals other than the spouse,

This is where the DPOA comes into play because if the Medicaid applicant lacks mental capacity, they will not be able to transfer assets. And, contrary to popular belief, a spouse does not have the authority to access the other’s bank accounts or other assets simply because they are married—unless the spouse were a joint owner, they would need a DPOA or be appointed legal guardian by the court, a costly and time-consuming process.

Since the standard statutory form does not include any gifting over $5,000, modifications must be included with additional provisions supplementing the authority granted to the agent. For starters, the document must specifically authorize gifting. In the scenario where assets need to be transferred to the spouse and the spouse is the agent in the document, it must also specify the authority for self-gifting.

While authorizing your agent to gift assets to themselves can be critical to securing Medicaid coverage, it should not be done without careful consideration. Any assets transferred would no longer be governed by the will, trust, or other estate planning documents of that person. Once property is transferred to another person, it is theirs and, while one would hope they would follow the wishes of the principal, it raises the risk that chosen beneficiaries will be disinherited. Choosing an agent that a principal trusts completely to follow their wishes and only do what is in their best interest is a necessary part of this type of planning.

The decision whether to grant the agent the authority to self-gift under a DPOA is not an easy one and there is no “right” answer. On the one hand, allowing the agent to gift assets to themselves may be the only way to quickly qualify for nursing home Medicaid coverage if one lacks the legal capacity to transfer the assets. On the other hand, an agent may never be needed to gift or self-gift because Medicaid is not needed or there are other ways of gaining eligibility.

The moral of the story is to address estate planning with an experienced elder law attorney sooner rather than later to advise on these issues and draft the appropriate DPOA document. There are various strategies by which assets can be protected for Medicaid eligibility while effectively ensuring that assets are left to chosen beneficiaries at the time of death.

Nancy Burner, Esq. is the founder and managing partner at Burner Law Group, P.C with offices located in East Setauket, Westhampton Beach, New York City and East Hampton.