Does your Financial Durable Power of Attorney (financial DPA) contain asset protection and government benefits qualification language? It probably does not, unless it was prepared by an elder law attorney. If you lose mental capacity, your spouse or children may be prevented from gifting your assets to themselves, in order to help you qualify for Medi-Cal or for the VA Aid & Attendance Pension benefit.
If your financial DPA contains any gifting language at all, it is probably limited to the annual gift tax exclusion amount, which is $13,000 per person this year. This language is usually of little help for Medi-Cal qualification. In addition, the language will probably not allow for gifting to the “attorney in fact”, who is the person acting for you. Specialized language is required under the law in order to allow for any gifting to the person acting as the “attorney in fact.” This specialized language usually does not appear in a “regular” financial durable power of attorney.
For instance, the home can easily be established as an exempt asset for Medi-Cal qualification. If the home is in the name of the Medi-Cal applicant who has lost mental capacity, and we want to transfer the home to a child and reserve a life estate to the applicant in order to avoid a Medi-Cal lien, most financial durable powers of attorney will not allow for this. Most financial durable powers of attorney will allow a transfer only upon receipt of consideration from a sale for fair market value of the real property.
To give another example, the Medi-Cal applicant, under the regulations, is allowed to own a life insurance policy, with a pay on death figure in any amount. However, in order to qualify for Medi-Cal, the applicant’s life insurance policy cannot have more than $1500 cash value. If there is a $5,000 cash value, for instance, the Medi-Cal applicant cannot qualify. The remedy is to liquidate the cash from the policy and then gift it out. What do you do however if the Medi-Cal applicant has lost capacity? We need to then look at the powers in the financial durable power of attorney. However, although most financial DPAs may allow for a liquidation of the cash value, they will not allow you to gift the cash out. The Medi-Cal applicant can only retain $2,000 in non qualified accounts, and if the cash from the policy cannot be gifted, it would have to be spent before qualification for Medi-Cal can be obtained.
The financial DPA in an elder law context, is also coordinated with the revocable living trust of the applicant. There should be specialized asset protection language in the trust, which refers to the financial DPA. This specialized language will allow the attorney in fact to “stand in the shoes” of the maker of the trust, for all purposes, including for Medi-Cal qualification. This technique is allowed by law, and provides the greatest amount of flexibility for the family who is helping the older person who has lost capacity, when we are applying for Medi-Cal.
Remember that if existing estate planning documents are not updated before the older person loses capacity, we may have to resort to a court proceeding to modify the language in the documents. This process is expensive and is not always guaranteed. The best approach is to pre-planning, and to have your estate planning documents updated as early as possible by a qualified elder law attorney, who practices full time in this area of the law.
Written Michael J. Young, elder law attorney in Walnut Creek, CA. www.WalnutCreekElderLaw.com mike@WalnutCreekElderLaw.com. 1931 San Miguel Dr., Suite 220, Walnut Creek, CA 94596. 925-256-0298. Mr. Young serves Contra Costa and Alameda Counties, including the cities of Walnut Creek, Alamo, Danville, Concord, Brentwood, Pleasant Hill, Antioch, Clayton, etc. Mr. Young advises clients regarding Medi-Cal, nursing homes, asset protection, the VA Aid and attendance pension benefit, and long term care planning. Mr. Young is a Concord Elder Law Attorney with offices in Walnut Creek, CA.