This is a recent Pennsylvania Superior Court case that highlights how important a power of attorney can be in proper planning. In this case an executor who was also the agent under a power of attorney for the decedent was forced to account for his use of the power of attorney prior to the death of the decedent. The objections to how the power of attorney was used were not appealed so we did not get all of the details on the document itself. However, the opinion does shed some light, at least by inference, on Medicaid planning with a power of attorney.
Briefly, Medicaid planning is a process where someone accelerates their eligibility for Medicaid (Medical Assistance in PA) by restructuring or transferring assets so that they meet the financial qualifications for Medicaid eligibility sooner and preserve more resources for their loved ones. Sometimes this restructuring is done directly by the applicant (usually an older or disabled adult), through their agent under a power of attorney or by their legal guardian. Today courts are more likely to allow guardians to engage in this planning to protect the healthy spouse, less so to protect an inheritance for the children unless one or more is disabled or a minor. There has been some discussion, but few cases, as to whether a guardian has the power to engage in this planning for other purposes given that a guardian should be able to do anything the incapacitated person can do for him or herself.
Frequently this type of planning is performed via a power of attorney as in the Binnig case. While the details were not provided in the case as to the terms of the power of attorney, it was abundantly clear that the power of attorney lacked certain provisions that allowed for the transfer of assets that occurred prior to death (thereby reducing the size of the estate and causing another beneficiary to object). Not only does the power of attorney need to allow the administrative function of the transfers (i.e. the ability to convey real estate or transfer assets in a bank or brokerage account) but it needs to clearly identify the reasons why the transfers may occur (Medicaid or Asset Protection Planning). An agent under a power has a fiduciary obligation to the principal (the person who authorizes the agent to act on the principal’s behalf). Therefore he or she cannot simply transfer assets of the principal to him or herself unless doing so is in the best interest of the principal absent authority in the power of attorney to do so.
One can infer from the Court’s opinion that, had the power of attorney been properly drafted with this type of planning in mind and discussed with the principal at the time of execution, the plan would have been carried out and the objections dismissed. Particularly after Act 95 of 2014 where sweeping changes were made to the requirements of powers of attorney in Pennsylvania, it is important that you review your financial powers of attorney to make sure your agent has the ability to do what you would want them to do if you are unable to act.
This article was written by Robert M. Slutsky, Esq., of the law firm Robert Slutsky Associates in Plymouth Meeting, Pennsylvania.