When George Reilly was growing up in New York, his father had a nylon gym bag that he called his “death bag.”
“He told my siblings and I that all of the family’s important documents were in it,” Reilly told Care.com.
The day Reilly’s father entered the hospital, where he would later die, the younger Reilly knew exactly where to look to find his father’s power of attorney.
“It’s important that family members know where these living and end-of-life planning documents are located,” said Reilly, a certified financial planner and founder of Safe Harbor Financial Advisors in Rhode Island and Fairfax, Virginia.
Unlike Rhode Island, Virginia is among the states that have enacted the Uniform Power of Attorney Act (UPOAA), which was drafted and approved by the National Conference of Commissioners on Uniform State Laws in 2006.
The Uniform Law Commission is a non-profit organization made up of volunteer attorney-commissioners appointed by the states. Uniform laws like the UPOAA are only models and have no force of law until enacted by a state legislature.
“We have a legislative team that encourages adoption of uniform laws, but widespread adoption takes time and some uniform laws are never adopted everywhere,” said Benjamin Orzeske, chief counsel with the ULC in Chicago.
Some 25 states — including New Hampshire, Wyoming, Texas, and North Carolina — adopted the power of attorney legislation last year.
State legislatures that have adopted the UPOAA have varying requirements, but overall, the model legislation sets important limits to an agent’s power. For example, the UPOAA provides for a default rule in Section 201(a)(1) that agents cannot “create, amend, revoke, or terminate an inter vivos trust” unless the POA expressly grants the agent that authority. However, an aging parent who creates a POA using the statutory form in UPOAA Section 301 can grant the agent authority by initialing on the relevant line.
“An agent designated under a UPOAA can only act on behalf of a living principal,” Orzeske told Care.com. “They can never create a will. A will can only be created by an individual for himself or herself. Therefore, agents can only create inter-vivos trusts not testamentary trusts.”
An inter-vivos trust is a living trust created while the parent is alive, which allows the transference of personally-owned property into the trust whereas a testamentary trust is created at death by directions in the decedent’s will and funded with property from the decedent’s estate.
“Without the power to revoke or terminate an inter-vivos trust, a POA may not have access to the assets needed to allocate toward the elder’s care while they are alive,” said Cheryl J. Sherrard, a certified financial planner in Charlotte, North Carolina.
Because the POA document will end upon the death of the individual who created it, one of the first questions to ask an aging parent is whether there is a will or trust underlying the POA.
“A POA document is not a tool to be used for post-death estate planning,” said John Cooney, a financial planner and founder of Green and Gold Financial Planning in Middleboro, Massachusetts. “Wills and trusts are in effect post-death to execute the wishes of the individual.”
As an adult child reviewing an aging parent’s POA document, it’s important to be aware of whether it includes gifting provisions. This is important when both parents are still alive, according to Steve Wright, a financial advisor with Cartwright Advisors in Columbus, Ohio.
Without gifting provisions, an adult child who is assigned POA can withdraw money from the parent’s IRA, but the money would need to be deposited into the parent’s checking account and used for that parent’s care and nothing else.
“If the majority of liquid assets are in dad’s IRA and dad is in a nursing home, the POA cannot use the IRA money for mom unless it has a gifting provision since IRAs can never be joint assets,” Wright told Care.com.
A third question relates to whether a parent’s POA grants the power to change rights of survivorship because an agent with such powers can seriously affect an estate plan.
“The UPOAA does not allow an agent to perform this dangerous act unless the parent specifically states the intent to give the agent that power in the POA document,” Orzeske said.
That’s because whoever is designated the POA can inappropriately change an account and make him or herself the surviving owner.
“With that, the POA would inherit that account or property outside of probate, thus not allowing for any challenges in probate court,” said Scott Bishop, a certified financial planner in Houston. “In Texas, a POA can change beneficiaries. It’s a new power.”
Like Reilly, it’s important for adult children to address these issues before such documents are needed so that any kind of transition involving long term care and eventually death can be handled seamlessly. It would also be wise for them to consult with an elder law attorney for guidance on estate planning and see if the uniform law applies in their particular state.
* This article is for general informational purposes only, and any views, opinions, or recommendations of expressed in it are solely those of the author, and not Care.com, Inc. The information contained herein is general in nature and is not intended as legal, tax or investment advice. Furthermore, the information contained herein may not be applicable to or suitable for your specific circumstances and may require consideration of other matters. Neither Care.com nor the author assumes any responsibility or liability with respect to use of any information contained herein.
