In my last blog I wrote about how the failure to incorporate a Durable Power of Attorney into your financial management plans can result in unintended consequences. Most people fail to understand, however, just how necessary a Durable Power of Attorney can be when it comes to managing your personal health care needs. The following scenarios lay out some of the situations that could arise if you fail to have a proper Durable Power of Attorney in place:
Arthur and Molly have been married for 45 years and have two children, Fred and George. Arthur and Molly have always meant to do estate planning, but just never get around to it so neither of them have a Durable Power of Attorney. Arthur suffers a stroke while golfing and is rushed to the hospital. Arthur’s stroke leaves him unable to communicate effectively, so Molly must handle most everything related to Arthur’s care. Eventually Arthur is discharged to a rehabilitation center, where Molly signs all of the admissions paperwork in her individual name. Although Molly is doing what she believes is necessary to ensure Arthur receives proper care, Molly is unaware of several issues that may have made her life a lot more difficult:
- Molly has unrestricted access to any and all of the bank accounts and other assets that are titled in her and Arthur’s joint names, so she can spend the money in their joint accounts on Arthur’s care. Molly cannot, however, access Arthur’s individual accounts. If Molly has insufficient assets and requires additional funds from Arthur’s IRA, or any other individually owned assets, she will have to obtain a court-ordered guardianship. This can be especially problematic in second marriages when many assets may still be held in the individual names of each spouse.
- Molly signs multiple documents when getting Arthur into rehab, as a result of this Molly may have personally assumed responsibility for Arthur’s rehab bill. What Molly did not know is that under Florida law a spouse is not personally liable for the other spouse’s individual debts, even if such are related to medical care. If Arthur dies Molly may still be required to pay the rehab bill she assumed responsibility for, whereas if Molly had been authorized under a Durable Power of Attorney to execute contract’s on Arthur’s behalf only Arthur’s probate estate would be liable for the rehab bill – and if Arthur has no probate estate because everything is co-owned with Molly (commonly referred to as “Tenants by the Entirety”) then Molly would not have been obligated to pay the bill, thus keeping more money for her own needs.
- Let’s assume Molly also suffers a medical emergency and is either incapacitated or dies, the lack of a Durable Power of Attorney means neither Fred nor George have any authority to transact financial business on their father’s behalf. Fred and George have no choice but to seek a court-supervised guardianship, which will cost thousands of dollars, just so they can then file their father’s tax return, pay his bills, sign contracts for his medical care, etc. Even after the guardianship is granted the guardian will have to spend hundreds, if not thousands, of dollars to file annual reports with the Court regarding Arthur’s ongoing medical care and management of Arthur’s bank accounts.
- Arthur has a Durable Power of Attorney he executed when he lived in Indiana. It is about one page long and essentially says Molly has all authority Arthur can grant her under Indiana law. The problem is Arthur and Molly now live in Florida, and our laws are very different from Indiana. Therefore, financial institutions and other third-party vendors may be able to reject the Durable Power of Attorney without fear of being subjected to a lawsuit and possible penalties.
A Durable Power of Attorney should be drafted to so it: (1) contains “Durable” language that keeps the Power of Attorney in effect even if you become incapacitated; (2) contains the Florida recommended language regarding banking and investment transactions; (3) identifies multiple people (in successive order) authorized to act as your agent(s); (4) grants “enumerated” authority for agent(s) to perform certain tasks; and (5) is executed with the formalities required by law. If properly done your family will have one less stressful matter to address if you become medically incapacitated.
A Durable Power of Attorney is a powerful tool that enables your chosen family, friends, accountant, professional guardian or attorney to act on your behalf without assuming personal liability for your bills, without the need for an expensive guardianship, and without experiencing delays in meeting your personal financial needs. Be sure to address this issue ASAP by giving me a call to discuss your existing Durable Power of Attorney or to add one to your estate plan.
By John T. Marshall, Esq.