The Power of Attorney (“POA”) and Statutory Gifts Rider (“SGR”) are two of the most important documents drafted by an elder law attorney. The absence or deficiency of these documents increases the likelihood of a costly guardianship proceeding to have someone appointed by the Courts to handle your financial affairs. Moreover, the ability to implement some of the most common elder law planning techniques necessary to preserve your assets is practically eliminated. Boilerplate documents off the internet or documents prepared by non-elder law attorneys do not include the provisions necessary to preserve your assets and this is usually a surprise to clients. The following is an overview of the POA and SGR together with some illustrations of the common defects I see in improperly prepared POAs and SGRs.

The Purpose of the POA and SGR

In 2009 and again in 2010, the statute that governs the POA was entirely revamped. While there are too many revisions to discuss in this article, the most recognizable changes to you would be the appearance of the POA form and the addition of the SGR.

The purpose of a POA is to give another person (an “agent”) the authority to handle your financial affairs. For instance, you might prepare a POA appointing your spouse or child. The POA is effective immediately upon signing. Thus, if you appoint a child to act as your agent, he/she does not have to wait until you become incapacitated to act; rather their authority and ability to act is immediate. The powers found in a POA are largely administrative powers (i.e. the power to pay your bills, the power to represent you at a real estate closing, the power to open a bank account in your name, etc.).
The purpose of the SGR is to authorize your agent to enter into transactions that are considered “changes in beneficial interest” (i.e. the power to make gifts in excess of $500, the power to transfer assets to trusts, and the power to change beneficiary designations.) A SGR is a completely separate document that needs to be signed at the same time as the POA. Many clients are unaware that a SGR exists.

The key to a properly drafted POA and SGR lies in the modifications added by an elder law attorney. Reliance on the statutory form is improper as it does not contain modifications. Here are some examples.

Modifications to the POA

A POA should include the power to create, amend, revoke, or terminate revocable or irrevocable inter vivos trusts. This power becomes imperative where an elder law attorney seeks to preserve the value of a client’s home who is receiving community Medicaid. In my last article I wrote about Medicaid’s ability to file a claim against an estate to recover benefits paid and how transferring the homestead to a revocable trust avoids an estate recovery claim.

Another power the POA should include is the power to enroll you in a pooled income trust. When a community Medicaid application is filed, the income of the Medicaid recipient can be preserved by enrolling the applicant in a special type of trust called a pooled income trust and transferring the Medicaid applicant’s surplus income to that trust. Many of you may have heard of the NYSARC trust.

Modifications to the SGR

It is important to reiterate that the single most common oversight is the failure to prepare a SGR. With that being said, the most common oversight in preparing a SGR is the failure to add modifications allowing the agent to (i) transfer assets to himself/herself and (ii) transfer your assets in unlimited amounts.

Both of the above modifications enable the elder law attorney to implement many techniques that create Medicaid eligibility. The fundamental concept of Medicaid planning is that assets need to be strategically removed from your name. If you lose your capacity and the SGR does not allow the agent to transfer all of your assets, the SGR is relatively useless. Moreover, since your agent is usually the person that would be the recipient of the transfer (i.e. a spouse), not having the power to make transfers to himself/herself might necessitate using another family member or non-relative to receive your assets.

The failure to recognize the necessity of a POA and SGR is common. However, once you commit yourself to an estate plan, having a deficient POA and SGR is unacceptable. If you do not have a POA and SGR or have documents that do not include the modifications discussed herein, please contact us.