11 Jul Success Story Of The Month – Overcoming A Defective Or Less Than Powerful Power Of Attorney
What could go wrong when using a general durable power of attorney for an agent to sign a deed (in this case, a Ladybird deed) on behalf of the principal (the one who signed the power of attorney)? Are there additional powers that should be considered in the power of attorney other than language approved by the state legislature or some form document?
Facts: Husband and wife are in a nursing home and are on long-term care Medicaid whereby the government helps subsidize the cost of their care. Both have signed a power of attorney (that covers many financial decisions including real estate transactions) that was notarized. The most valuable asset they have is a homestead worth $350,000. Although the homestead is a noncountable resource for Medicaid eligibility, the state will have a right to make a claim against the home to the extent Medicaid benefits were advanced on behalf of the survivor of them (i.e., the nursing home costs paid by the government including medications). One exception to Medicaid having a successful estate recovery claim is if there is a surviving spouse. As a result, benefits advanced on behalf of the first spouse to die would not result in a successful claim by the state. However, under Texas law, the state would have a right to make a claim against the homestead if the homestead of the deceased Medicaid recipient’s home passes by intestate (without a will) succession of by Will. As a result, many Medicaid recipients (or their agent under a power of attorney) sign a Ladybird (enhanced life estate) deed whereby the home passes by deed at death instead of by Will or intestacy. Texas is one of a few states that permits a Ladybird deed to protect the home from a successful claim by the state.
In this case, the children of the Medicaid recipients (their parents) thought it would be best to use the parents’ signed general durable power of attorney so that the agents (acting on behalf of parents) could sign a joint Ladybird deed to avoid a successful claim by the state for Medicaid estate recovery as the property would pass by deed instead of by Will or intestacy.
Problem 1: Notary error. The notary who notarized the husband’s power of attorney filled in the blanks incorrectly as she indicated that husband was the notary and that she was the one signing the document as the principal.
Solution 1: Find the notary and have her correct by crossing out, initialing and dating. Otherwise, the county clerk will not record the power of attorney which would be required for the deed to be effective.
Solution 2: Husband could sign the Ladybird deed or sign a new power of attorney properly notarized assuming husband/parent has sufficient mental capacity and was not under undue influence or duress at the time the document was signed.
Problem 2: Originals must be recorded. The children could not find dad’s original power of attorney. If an agent is acting on behalf of the principal in connection with real estate, the original power of attorney must be recorded. The county clerk will not record a copy of a power of attorney.
Solution: Husband/parent will either sign the Ladybird deed (since the copy of the existing power of attorney could not be recorded) or sign a new power of attorney assuming mental capacity and that he had sufficient mental capacity and was not under undue influence or duress at the time he signs the document before a notary.
Problem No. 3: Questionable Capacity. Although it is believed husband/parent had sufficient mental capacity to sign the deed or new power of attorney, there was not certainty. Even if husband/parent signed the deed, if a title company believed there wasn’t sufficient mental capacity, then it would not insure title at the time the property is sold.
Solution: Have a geriatric psychologist or psychiatrist examine dad and sign a capacity affidavit confirming capacity at the time of signing of the deed and/or power of attorney.
Problem No. 4: Adequate Authority. Most powers of attorney either permit no gift giving authority or limit any gifting to the annual gift tax exclusion (presently $16,000 per year, per person). As a result, some title companies would not give title insurance saying the agent was acting beyond the powers given.
Solution: The power of attorney should not just be a statutory form or a form off the internet. The power of attorney in this case should clearly permit broad gift giving, the ability to create or change a Ladybird deed, and perhaps permit self-dealing if the parent wanted the agent (child in this case) to be able to deed the property to the agent. Other examples of authority that should be considered in the power of attorney include the right to create and fund a trust. So, for example, the Ladybird deed could name a trust as a grantee (as opposed to being an individual or individuals) to reduce risk, if: (1) there is more than one grantee and the grantees do not agree on the sale, lease or mortgage of the property; (2) one of the grantees has creditor issues; (3) one of the grantees has marital issues; (4) one of the grantees is a spendthrift; (5) one of the grantees is a minor; (7) one of the grantees dies before parents or whomever is grantor; (8) one of the grantees has an addiction; or (9) one of the grantees is disabled. There can be a contingent trust within the trust to protect a beneficiary who has any of the issues listed above.
Problem No. 5: Too Old. This week a client reported a title company would not permit the agent (child) to sell the property since the power of attorney was nine years old.
Solution: Go to a different title company. Powers of attorney generally terminate on death. However, it is up to the underwriter to determine if it is willing to insure or not. So, if one title company is not willing to insure, then consider if another title company would. Of course, another option, (assuming mental capacity) is for the principal to sign another power of attorney or just sign the deed and other closing documents without the use of a power of attorney.
If interested in learning more about this article or other estate planning, Medicaid and public benefits planning, probate, etc., attend one of our free upcoming virtual or in person Estate Planning Essentials workshops by clicking here or calling 214-720-0102. We make it simple to attend and it is without obligation.