Judd Matsunaga
I started drafting living trusts and related estate planning documents close to 30 years ago. More often than not, parents will pick an adult child to be their “Successor Trustee” and also name the same adult child as their “Power of Attorney.” So, one of the questions I get asked the most is, “When does he/she act as trustee? And when does he/she act as power of attorney?”
The answer is actually quite simple. If the asset, e.g., home and bank account, is in the trust, you control it as trustee since you probably named yourself as “Primary Trustee,” i.e, you stay in control over your assets. However, your trust should also have named a “Successor Trustee” to take over in case of death or incapacity.
Quite often, when the aging parent starts to slow down, the adult child will step in and help the aging parent pay bills and handle other financial matters. But, I’ll often get this call from the adult child, “The bank won’t talk to me because I’m only the ‘Successor Trustee,’ and they said I have to be a ‘Primary Trustee’ to get information or give any instructions to the bank.” So, either the parent resigns as trustee, or we amend the trust to appoint the adult child to be a “Co-Primary Trustee” with the aging parent.
However, if the asset is not in the trust, e.g., IRA, retirement account with a beneficiary, life insurance, Social Security, government benefit, etc., you control it as Power of Attorney. A POA is a legal document that allows someone else to act on your behalf. A POA is an important part of any good estate plan. A POA is essential for older people who want to choose a trusted person, also called an agent, to act on their behalf if and when they cannot.
Did you know that every 67 seconds, someone in the United States develops Alzheimer’s disease? Furthermore, the number of new cases is expected to increase.
Given that it’s so common for aging adults to eventually start slipping mentally, every older adult should execute a valid POA. Even younger adults — who could be suddenly disabled due to an accident or serious health crisis — should execute a POA. In California, we use two POAs, one for finances, sometimes called a Durable General Power of Attorney, and one for health care.
If you develop Alzheimer’s or some other dementia or illness that causes incapacity and don’t have a valid POA, the court could appoint a stranger to be your public guardian or conservator. Furthermore, that court process can be lengthy, expensive and very public. Wouldn’t it be much safer to pick a trusted friend or family member? You bet! That’s why you need to execute a POA.
A financial POA essentially allows a person (known as “the principal”) to give someone else (“the agent,” also known as “attorney-in-fact”) the ability to act on the person’s behalf. The principal needs to be of “sound mind” when signing the form. A POA generally is “durable,” meaning it continues to be effective, allowing the agent to take action even if you become incapacitated at a later date.
The Consumer Financial Protection Bureau recommends only appointing someone you really trust. The CFPB also says to make sure your agent knows your wishes and preferences. Furthermore, POA designations are not written in stone – you can change them. If you decide that your agent isn’t the best person to handle your finances, you can revoke or cancel your POA.
Note that POAs are governed by state laws, so the details can vary from state to state. But the general principles are likely to be similar throughout the country. In this article, I’ll focus on California. If you, or your older relative, don’t live in California, you’ll need to look for specifics for your own state. Working with a lawyer could help you avoid potential abuses.
Yes, you could download a POA from the internet. However, POAs done online may not contain the provisions you want or need. POAs drafted by a lawyer are generally broad in scope, enabling the agent to step in and assist with all kinds of things, e.g., finances, real estate, safety and anything else covered by the POA .
Also, checking boxes on a POA form you find online may or may not be effective when you need them. POAs can be effective immediately upon execution, allowing the agent to act now even if you still have capacity. While another POA might be “springing,” meaning it springs into effect upon incapacity. This means that the agent can’t act unless they have a letter (sometimes two letters) from their doctor or “attending physician” stating incapacity. POA forms seem to assume the principal has a doctor who knows him or her well, but that’s a faulty assumption.
But, some people don’t have a primary care doctor. What’s more, most doctors are not trained to evaluate long-term capacity in older adults. But POA forms usually don’t specify what qualifications the attesting doctors should have. Nor do POA forms specify what documentation or evidence a doctor should provide. Capacity can mean temporarily impaired or permanently impaired. POA forms usually don’t address this. It would be unfortunate for a person to permanently lose their rights, if later their capacity might improve.
The next POA that attorneys use is called a Durable Power of Attorney for Health Care. If you’re in the hospital — awake and alert — and the doctor needs “consent” to perform an operation or procedure, they’ll ask you. As long as you can give “informed consent,” you have the right to consent or refuse consent to any kind of treatment, service or procedure.
However, if you’re in the hospital in a coma, or otherwise not able to give consent to a medical treatment or procedure, the HCPOA names an agent that can. They can consent or refuse to consent to any kind of treatment or procedure for you, including the right to “pull the plug.” Notwithstanding the HCPOA, California law states, “You have the right to make medical and other health-care decisions for yourself so long as you can give informed consent.” So, you’re not giving up any rights.
One last word, a diagnosis of dementia, or even early Alzheimer’s, is evidence of “diminished capacity,” not lack of capacity. A person with diminished capacity may still execute a POA provided they have the mental capacity to understand the nature and consequences of the document they are signing. This mental capacity is often described as the “capacity to contract,” meaning the principal must be able to comprehend the risks, benefits and consequences of the powers granted to the agent. Your estate planning lawyer will be able to help.
Judd Matsunaga is the founding attorney of Elder Law Services of California, a law firm that specializes in Medi-Cal Planning, Estate Planning and Probate. He can be contacted at (310) 348-2995 or. The opinions expressed in this article are the author’s own and do not necessarily reflect the view of the Pacific Citizen or constitute legal or tax advice and should not be treated as such.
