Bonnie Kraham: Plenty of value in having elder law power of attorney

Elder law is dedicated to protecting assets from nursing home costs. Therefore, an elder law attorney usually recommends the client sign an “elder law power of attorney” that can save money from nursing home costs even on the eve of needing a nursing home.

In a standard power of attorney, you appoint agents who will make legal, business and financial decisions for you if you’re incapacitated. The main benefit of a power of attorney is to avoid a costly, time-consuming “guardianship proceeding,” when a judge appoints a legal guardian for the incapacitated person. Powers of attorney expire when you die, so are for disability planning only.

An elder law power of attorney includes a Statutory Gifts Rider that allows the agent to make gifts of unlimited amounts, with the guidance of an elder law attorney, to save money from nursing home costs. Nursing homes cost between $12,000 and $18,000 per month.

In New York, we have a technique used to save assets from nursing home costs called the “gift and loan strategy.” For example, it is common that an adult child asks what can be done when mom needs a nursing home and did no advance planning to protect assets from nursing home costs. Dad passed away years ago. As a single applicant applying for Medicaid to pay for nursing home costs, mom can only have at most $14,850 in assets.

If mom has $500,000 in assets and does not have an elder law power of attorney, she would enter the nursing home and have to keep paying the nursing home every month out of her own money until she has left $14,850, then apply for Medicaid.

On the other hand, if mom has an elder law power of attorney, she can save half of the $500,000. Her agent gives half of the money, $250,000, to the child as a gift, and loans the other $250,000 to the child under a promissory note with a rate of interest.

Gifts made within the last five years before you apply for Medicaid in a nursing home result in a “penalty period,” based on the amount of the gift. The gift causes mom to self-pay the nursing home throughout the penalty period. For a $250,000 gift, mom has a penalty period of about two years.

Every month throughout the penalty period, the child pays mom a monthly installment on the promissory note, which, with her monthly income, pays the nursing home bill. At the end of the two-year penalty period, the loan is paid off, and mom qualifies for Medicaid to pay for her care for the rest of her life. The child keeps the $250,000 gift.

A standard power of attorney limits gifting to $500 per year and would not allow saving mom’s assets.

The elder law power of attorney also allows the agent to create, amend or revoke trusts, allowing for future planning. The agent may also change beneficiaries, which might be needed if one of the beneficiaries becomes incapacitated and is receiving government benefits.

Bonnie Kraham is an attorney practicing elder law estate planning with Ettinger Law Firm, 75 Crystal Run Road, Middletown. She can be reached at 845-692-8700, ext. 119 or bkraham@trustlaw.com. This column is intended to provide general information, not legal advice.

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Bonnie Kraham: Plenty of value in having elder law power of attorney