Third Party Care: From Simple Powers of Attorney to Complex Guardianships

1. Third Party Care:From Simple Powers of Attorney to Complex Guardianships Christian S. Kelso, Esq. Winn, Beaudry & Winn, Attorneys at Law 4200 Thanksgiving Tower 1601 Elm St. Dallas, Texas 75201 214-969-0001 csk@wbwllp.com

2. Introduction • What is 3rd party care? • Can mean lots of things, depending on the need • Need for 3rd party care varies • Incapacity (temporary or permanent) • Convenience • Sophistication/specialization of tasks/knowledge • Legal/contractual requirements • Solution should be tailored to the need

3. Overview • Review of legal tools • Spectrum of “control” • Ability to act on behalf of another • Balanced with responsibility/duty to act in a certain way • Basic Levels • Powers of Attorney • General, Special, Durable, Springing, Medical • Trust • Revocable Living Trusts, Special Needs Trusts, Other • Guardianship • Guardianship of the Person, Guardianship of the Estate • Remember: Levels often overlap!!

4. Powers of Attorney Generally • Agency relationship whereby a principal selects another to represent him or her in some capacity, usually financial • Generally does NOT have to be in writing • Generally does NOT survive death or incapacity • May be general or “limited” to a specific circumstance or transaction

5. Powers of Attorney Generally • Pros: • Flexibility • Effective during life • Fully revocable, so long as principal has capacity • Copies are valid and easily transmitted • Power to make gifts limited

6. Powers of Attorney Generally • Cons: • May not be recognized by all parties • May not enumerate all powers • Not effective after death or incapacity • Subject to abuse (even criminal) • Power to make gifts limited

7. Powers of Attorney Generally • Note: To be effective in a real estate sale, a PoA must be notarized and filed in the county records. • Also: PoA’s are often needed when the principal becomes incapacitated, but the general rule makes them invalid at this time.

8. Durable Power of Attorney • Texas Probate Code (TPC), Ch XII • “Durable Power of Attorney Act” • §482 Definition: • Written instrument • Signed by adult principal • Contains ‘words of durability’ and • NOT required to match statutory form • Is acknowledged • Remains (or becomes) effective upon the principal’s disability • Durable PoA are immensely useful and recommended in nearly all situations

9. Statutory Durable Power of Attorney • TPC §490 • Pros: • Well-recognized, particularly by institutions • Short/simple/sweet • May be limited/extended by crossing out/writing in provisions • Cons: • May be inadequate for some circumstances, particularly special needs trust planning, where special gifting language should be included

10. “Springing” Power of Attorney • Durable power of attorney which becomes effective only on incapacity • Pros: • Potential for abuse is highly diminished • Cons: • Efficacy is highly diminished because incapacity must be proved • Result: Typically not recommended • Better sign regular PoA and keep until needed

11. Medical Power of Attorney • Health & Safety Code (H&SC) • §166.151 et seq. • Similar to financial PoA, except specifically designed for medical purposes • Not necessarily for end of life decisions • Effective only on incapacity • May require HIPAA release • Statutory form at H&SC §166.164 • Execution recently simplified

12. Directive to Physicians • A/k/a “Living Will” but DO NOT confuse with Last Will and Testament • Not effective after death • Does not dispose of assets • Does not control guardianship of minor children • Does not serve tax purposes

13. Directive to Physicians • Describes a patient’s desire to “fight to the end” or “die with dignity” • Often referred to (deceptively) as “pulling the plug” even though no plug is pulled • Should be called “pull the tube” • Can be very important if ever needed • Terri Schiavo

14. Directive to Physicians • Pros: • Effective when patient cannot express his or her own wishes • Provides guidance to doctors and agent acting under a medical power of attorney • Alleviates family tension • May save significant amounts of money • May be modified to specific desires

15. Directive to Physicians • Cons: • Lay people often find terminology difficult to understand and attorneys often have difficulty explaining it • Family may not wish to carry out directive • Requires clients to address issues they typically do not want to face • Only effective if doctors and family know it exists and where it is located

16. Trusts Generally • A trust is a legal arrangement whereby one or more “trustees” hold some right or property for the benefit of one or more “beneficiaries.” • Accomplished by splitting legal and equitable title • Historical background • Statute of Uses; Henry VIII

17. Revocable Living Trust • Most typical kind of trust used for 3rd party care • Established by executing a trust agreement and transferring assets into the trust • May be amended or revoked in any way • May include language to address special needs

18. Revocable Living Trust • Pros: • Fully revocable • Avoids probate • Functions like a PoA during life and like a Will after death • May avoid repayment to Medicaid • Allows grantor to designate successive persons to handle affairs

19. Revocable Living Trust • Cons: • May be cost prohibitive • Must be respected • May be too complicated for some people • Clients may fail to transfer all assets into the trust • Does not provide tax benefits

20. Special Needs Trusts • Allow beneficiaries to qualify for means-tested government benefits, such as Medicaid and Supplemental Security Income. • Generally divided into two categories: • Trusts established/funded by an applicant • Trusts established/funded by a non-applicant • More restrictions apply where the trust is funded by the applicant

21. Special Needs Trusts • Pros: • Enable beneficiaries to receive (or continue receiving) government benefits • Avoids forfeiting benefits when beneficiaries inherit • Cons: • Highly specialized • Highly restrictive

22. Guardianship • Court-created relationship by which one person is charged with the care of another • “Nuclear bomb” of 3rd party care • Similar to parent-child relationship • Types: • Guardianship of the person • Guardianship of the estate • Must be “least restrictive alternative” and should always be the last resort • Co-guardians generally disallowed, but different people may be guardian of the person and estate

23. Guardianship • Pros: • Complete control • A person may designate their preferred guardian before incapacity • May be terminated if ward regains capacity • Court supervision to prevent abuse • Costs may be reduced by eliminating the need for guardianship of the estate

24. Guardianship • Cons: • Court proceeding/supervision • Cost • Bond • Annual accountings • May be manipulated • May be contested • Ward/proposed ward • Others • Guardianship removes an otherwise emancipated person’s civil rights

25. Examples of Overlap • Clients may wish to include special language in their PoA’s to address trust issues, particularly funding • By establishing (and properly funding) a trust, guardianship, or at least guardianship of the estate may be avoided • MPoA’s often reference DTP’s for comprehensive planning • Trusts often reference guardianship as evidence of incapacity sufficient to trigger trusteeship succession

26. Conclusion • 3rd Party care requires a comprehensive plan • Clients should speak with family members about their plan to ensure that it is implemented as intended and does not cause turmoil in the family • Clients should discuss options with their attorney and other professionals

27. Questions?