Beware of using ‘off the shelf’ power of attorney forms

The power of attorney is one of the most important estate planning documents you can have. It allows you to appoint someone to act for you as your agent if you become incapacitated. Without such a document, your loved ones won’t be able to make decisions for you or manage your finances. They’ll have to ask a court to appoint a guardian or conservator - an expensive and time-consuming process that could result in someone making decisions for you that you wouldn’t agree with.

Although “do-it-yourself” power of attorney forms are readily available, it’s much better to have an attorney draft the document for you. There are many issues to consider, and this is a case where one size definitely does not fit all. For instance:

• What can your agent do? The power of attorney document sets out what an agent can and cannot do. Powers typically include buying and selling property, managing a business, paying debts, borrowing and investing money, engaging in legal proceedings, cashing checks, and collecting debts. They may also include the power to consent to medical treatment.

Some powers typically won’t be included unless you specifically mention them, such as the power to make gifts and the power to designate beneficiaries of insurance policies.

The power to make gifts is particularly complex and important. If you want to be sure your agent has the authority to do Medicaid planning on your behalf in the event you need to enter a nursing home, then the power of attorney must allow the agent to make gifts and to modify trusts. The wording can be significant, so it’s necessary to consult an attorney.

Some people want to give their agent certain powers but not others, or certain powers in certain circumstances and not in other circumstances. Some people want to limit the gifts an agent can make to certain amounts, certain beneficiaries, or certain purposes. We’d be happy to discuss these concerns with you.

• When can your agent act? The power of attorney can take effect immediately, or it can become effective only when you become disabled.  A power of attorney that takes effect only when you’re disabled is called a “springing” power.

While a springing power can be a good idea, it can also cause delays and extra expense because your agent might have to prove that you’re incapacitated in order to act on your behalf. If you choose a springing power, you’ll want your document to clearly spell out the method for determining incapacity, such as an affidavit from your family doctor.

• Should you have more than one agent? It’s possible to name more than one person as your agent. However, this can lead to confusion. If you have more than one agent, you should be clear as to whether both agents need to act together or whether they can each act independently. In many cases, it might make more sense to name a single agent and then name an alternative agent who can step in if the first agent is unable to act on your behalf.

It’s also possible for a power of attorney document to nominate a guardian in case guardianship proceedings become necessary. Usually a court will choose a guardian for you, but in most circumstances the court will abide by your nomination.

• Be sure your document is legally valid. To be valid, a power of attorney must be executed properly. Some states may require a signature, others require the document to be notarized, and still others require a certain number of witnesses. It’s important to make sure your document is legally executed in the right way.

• Consult your financial institutions. Even if you do everything exactly right, some banks and other institutions are reluctant to accept a power of attorney. These institutions are afraid of a lawsuit if they follow an agent’s instructions and the power of attorney turns out to be invalid.

For this reason, many financial institutions have their own standard power of attorney forms. To avoid problems, you might want to execute the forms used by the institutions with which you have accounts. However, you’ll want to take care that you don’t sign a bank’s document that inadvertently conflicts with your own power of attorney or that restricts your agent’s ability to deal with other assets.

If you’re over age 65 and you’re preparing to move to another state - or even to another county - you’ll need to make sure your Medicare plan will still be in effect after you move.

Whether your policy will still be valid depends in part on whether you have original Medicare or Medicare Advantage. If you have original Medicare, moving shouldn’t affect your benefits. Your Medicare plan will still be valid when you move. However, if you have a Medigap policy as well, you’ll need to check with your insurer. While the insurance company will most likely continue to renew the policy as long as you continue to pay your premiums, it might be able to change the amount of the premiums based on your new area of residence.

In addition, if you have Medicare Select - a type of Medigap policy that allows you to use only hospitals and doctors within its network - you may have to purchase a new supplemental policy if you move to an area where you’re not covered by the network.

If you have a Medicare Advantage plan, you’ll need to check with the plan to see if you’re moving out of its service area. If the plan doesn’t cover your new area, you’ll need to switch to another plan.

You have the option of switching to another Medicare Advantage plan in your new area or to original Medicare. If you do nothing, you’ll automatically be enrolled in original Medicare. If you do switch to original Medicare, remember that you might also need a Medigap policy as well as prescription drug coverage to take care of the coverage that your Advantage plan offered.

If you choose to switch to another Medicare Advantage plan, you should be able to enroll in the new plan right away without waiting for an open enrollment period. You’ll be eligible for a “special enrollment period” that usually starts one month before you move and ends two months after you move.

The best way to switch plans is to just enroll in the new plan. Once you do this, you will be automatically dropped from your old plan. To find out what plans and policies are available in the area where you’re moving, you can go to Medicare’s website at www.medicare.gov.

Long-term care insurance is expensive. One way that some people reduce the cost is to buy a policy that will cover care only for a limited period of time (such as three years), as opposed to a policy that covers care indefinitely.

Last year, almost a third of individual buyers purchased a three-year policy, according to the American Association for Long-Term Care Insurance.

But is that sufficient coverage? To answer that question, the Association recently published a report on the statistical likelihood that three years of coverage will be enough.

According to the report, the risk of running out of benefits with a three-year policy is fairly small. Overall, of those people who bought a policy with a benefit period longer than three years and made a claim for long-term care, only 13.1 percent needed that care for longer than three years. Only 7.6 percent of those with a policy longer than four years needed care for more than four years, and only 4.5 percent of those with a policy longer than five years needed care beyond five years.

The risk is lower for men than for women. For instance, among people who filed a claim at age 82, men had a 12.4 percent chance of exhausting their three-year benefits, while women had a 23.5 percent chance.

The savings from buying a three-year policy are significant. According to the report, most people save between 42 and 54 percent on their premiums compared to buying a policy with indefinite coverage. (People who buy a two-year policy save 51 to 64 percent, while people who buy a five-year policy save 30 to 39 percent.)

However, if your need exceeds the length of the policy, you’ll be on your own paying for care. A 55-year-old man who exhausts a three-year policy can expect to need long-term care for another 3.7 years, while a woman of the same age would need an average of 5.3 years of additional care. An 82-year-old man who exhausts a three-year policy will likely need another 1.9 years of care, while an 82-year-old woman will likely need 2.9 years.

Printed copies of the report are available only to Association members, but you can read it for free online at www.aaltci.org/subpages/resources/ marketing_claims_brochure.html