Powers of Attorney Considerations

The incidence of Alzheimer’s disease among those 85 and older is reportedly about 47%.  This population is growing and needs help with financial management.  As we’ve also discussed in other commentary, we all become more susceptible and targeted for elder abuse and fraud as we age.

Although it happens to all types of people, studies have shown that folks with a higher level of education and obtain more wealth are actually more vulnerable.  Research from Fidelity has also reported that keeping mom and dad in their home and safe from fraud and elder abuse are the number one and two concerns for adult children.

As a result, we typically assign money and health care management to other trusted family members when a loved one can no longer act in their own best interest.  The most common tools to permit a family member to assist with handling an elderly person’s assets are a financial power of attorney and a health care proxy, which we’ve previously discussed as essential estate planning documents.

Unfortunately, these documents can also be an avenue that leads to abuse, both financially and physically.

While naming someone to act on our behalf when we cannot remains critically important, and where these documents serve this purpose, here are some additional recommendations to consider:

• Involve multiple family members.  Checks and balances for the power of attorney may be created if more than one person must sign off on the exercise of the power.  Although this may limit quick decisions in the event of an emergency, the tradeoff for greater security may be worthwhile.

• Hire a Care manager.  An independent care manager may be hired to evaluate your parent periodically to report to the family member named as their health care agent.  Despite our best intentions, very few us are actually qualified to perform this task and a care manager can determine whether the appropriate care is actually being provided to an elderly person (whether at home or in a facility) and also make recommendations for necessary changes.

• Reconsider Gift Provisions.  A power of attorney may be drafted to specifically allow for “gifts”.  When the federal estate tax kicked in at much lower levels, some estate planners routinely advised that gifting powers be included in a power of attorney, so as to begin putting a gifting plan into effect to reduce potential estate taxes.  Given today’s high federal estate tax exemption, however, such gifting powers are less important.  The income tax benefits of holding property until death may even be far greater than the potential estate tax savings for all but the largest estates.  What’s more, gifting powers have been a specific source of elder abuse.

• Living trusts.  It is becoming more and more common for elderly clients to outlive their spouses, siblings and friends.  That creates a dilemma when there are no children nearby.  The use of a revocable trust that names an institutional co-trustee or successor trustee can act as a substitute for a power of attorney and provide a viable solution for clients fitting this profile.  We’ll discuss revocable trusts further in another week or so.

When it comes to preventing elder financial abuse, a power of attorney and a health care proxy are essential as long as the powers it conveys don’t become a potential source of abuse.  Just recognizing that your loved one is a potential target for abuse may be enough to get the conversation going.  Regular family conversations about your loved one’s affairs are crucial.  Keep the conversations going, not only after a financial or health event, and make it part of your conversations if you get together on a regular basis.  If you don’t get together on a regular basis, then it’s a good excuse to do so.

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