Unique problems come with aging. Are your powers-of-attorney meeting your needs? What should they include and who should draft them? Article orginially published in the KBA's Bench and Bar Magazine.

By:
Carolyn L. Kenton & Amy E. Dougherty, BLUEGRASS ELDERLAW, PLLC
Robert L. McClelland, McCLELLAND AND ASSOC.
Monica M. McFarlin, Esq.

Lawyers are routinely called upon to draft and execute agency agreements, primarily powers of attorney. This article addresses the importance of using specific language in agency appointments and powers of attorney. Specifically, it addresses the unique needs of the elder client and particular clauses which offer protection to the client and latitude in planning.

General practice attorneys may prepare a standard one-page power of attorney document for their client feeling that it is an adequate grant of authority. Alternatively, the client’s child may download a form from the internet. In neither case do those documents satisfy the necessary specificity required and may be counterproductive to the client’s actual needs. These documents may be so brief that they merely grant powers to act for the grantor in the grantor’s name, place and stead and the power to do any act for the grantor which the grantor might do or perform for himself.

A power of attorney is a contract between the "principal" and an "agent" granting the agent specific authority to act on behalf of the principal to the extent shown in the instrument.[1] The common law rules of agency require a specific statement of the scope of the power granted; therefore, although well meaning, general language is insufficient authority for the agent to perform his duties. Specifically stated powers, although essential in every context, are pivotal in relation to asset preservation and Medicaid planning. A power of attorney document for an older client, if the family wishes to engage in asset preservation, should permit the attorney in fact both the authority to execute deeds and enable intra family gifting.

I. Capacity to Execute and Subsequent Incapacity of Principal

It is important for older clients to name an agent while they have their full faculties because with advancing age comes the likelihood of incapacity or disability possibly rendering them unable to execute such documents. Even the simplest of daily transactions such as paying the utility bill or addressing pharmacy needs may be blocked by the inability of a child or significant other to act on behalf of their loved one. [2]  No Kentucky cases address the issue of the level of competency necessary to execute agency documents as exists regarding executing testamentary documents. 

It is important to emphasize that as a power of attorney is a contract, there is a standard of capacity required of the parties who enter into such an agreement which reaches above that required for executing testamentary documents. [3]

A practitioner should carefully vet a person's ability to understand the scope, power and implications inherent in the document she/he is signing.  The principal should also have a firm and realistic understanding of the capabilities of the agent being appointed as this document is transferring substantial powers to another person either immediately or upon a stated contingency.

Under the common law, incapacity of the principal prevented or extinguished the authority of the agent to act for the principal. [4] To permit the agent of an incapacitated person to continue handling the business affairs of the principal, the Kentucky General Assembly in 1972 enacted KRS 386.093(1).  This statute defines “durable power of attorney” to mean a written power of attorney by which a principal delegates another as the principal’s attorney in fact.  In order to become “durable”, the instrument must contain words such as, “This power of attorney shall not be affected by subsequent disability or incapacity of the principal, or lapse of time”.

II. Extent of Powers Granted

The importance of addressing specific powers in the power of attorney instrument was illustrated by the Kentucky Supreme Court’s holding last August when it ruled in Donna Ping, executrix of the estate of Alma Calhoun Duncan, deceased v. Beverly Enterprises, Inc., et al., [5]  that an agent could only exercise powers specifically enumerated by the principal.  In Ping, the plaintiff filed suit alleging negligence by the defendants in providing long term care to her mother, Duncan.  The defendants attempted to assert Ping had no right to bring suit as she had executed an agreement, as agent on behalf of Duncan, to take disputes to arbitration. Prior to Duncan’s admission to the nursing home, she executed a general durable power of attorney in favor of Ping which listed specific powers and stated that Ping was authorized to generally do any and every further act and thing of whatever kind, nature or type required to be done on Duncan’s behalf.  The power of attorney instrument also stated that the enumeration of specific items, rights, acts or powers did not limit or restrict the general and full power granted to Ping. [6]

The Kentucky Supreme Court found that Ping lacked the actual authority to bind Duncan to the arbitration agreement.  The court held that the power of attorney document must specifically grant that authority to the attorney in fact.   The court rejected the Ping’s claim that Duncan’s intent to grant a broad scope of authority was indicated by the general language: “Rather, we have indicated that an agent’s authority under a power of attorney is to be construed with reference to the types of transaction expressly authorized in the document” [7](emphasis added).  The court went on to note that the power of attorney applied to decisions reasonably necessary to maintain Duncan’s property, finances and medical care. [8]

Of great significance to the court was its characterization that signing a mediation agreement waived a principal’s right to seek redress in a court of law.  Such a power would need to be specifically enumerated in the power of attorney document for its exercise to be valid.

Based upon the court’s language in Ping, specific language needs to authorize or prohibit the actions taken by the attorney in fact. 

To address the specific issue in Ping, a practitioner might consider adding a provision in the power of attorney document authorizing the initiation and defense of law suits.  For example, “to defend all actions and suits which shall be commenced against me and to compromise, settle and adjust all actions, accounts, dues and demands in such manner as my said attorney-in-fact shall deem appropriate.”  To ensure that there is no misunderstanding about the rights of the principal to have access to the courts, the power of attorney might state that "this grant of authority does not give my agent the right to waive my constitutional right to a court of law”.

III. Choice of Agent

Clients often choose the oldest child or the youngest child or the child who lives closest to them.  Part of an attorney's job is to help the client to choose the most appropriate person as agent.  In our electronic age, the attorney in fact does not have to live in the principal's community to manage the checking account.  On-line banking allows a child in Oregon to pay bills for a parent living in Kentucky. Discuss these issues with the client.

It is advisable whenever possible to appoint an alternate attorney-in-fact in case the first named agent is unable or unwilling to serve.  In those situations where powers of attorney are being drafted for an elderly couple, the initial appointment may be the capable spouse but an alternate appointment may be crucial to prevent the need for guardianship when the competent spouse dies unexpectedly leaving a spouse with dementia with no alternative agent.  The instrument may name multiple co-agents with independent authority, "acting jointly or individually as the case may require” [9]

IV. Accountability of Agent to Principal

Kentucky does not have a comprehensive power of attorney statute which addresses the issues of agent/attorney in fact accountability and liability. The attorney in fact is deemed a fiduciary under Kentucky case law but not by statute. [10] The authors believe that to curb financial abuse of the elderly, Kentucky agents should be statutorily classified as fiduciaries.

V. Gifts Under Powers of Attorney

Both the power to transfer real estate and the power to gift are provided for by Kentucky statutes. KRS 386.093 was amended in 2000 to state in relevant part that "a durable power of attorney may authorize an attorney-in-fact to make a gift of the principle's real or personal property to the attorney-in-fact or to others if the intent of the principle to do so is unambiguously stated on the face of the instrument” [11] Shortly after that amendment, the Court of Appeals in Ingram v. Cates [12] upheld the ruling in Wabner v Black [13] that an agent using "utmost good faith" could make gifts under a power of attorney if there was no specific provision.  The Ingram case involved a power of attorney drafted prior to the 2000 statutory amendment, requiring express permission for an agent to make gifts. [14]

Many elder law attorneys believe that KRS 386.093 mandates that a written authorization include the following language:  "The power to make gifts of my real or personal property or my interest in such property to my agent, children and grandchildren, including any child or grandchild of mine who may be acting as my attorney-in-fact, in such manner as my attorney-in-fact deems appropriate, including, but not limited to, outright gifts, gifts in trust, or gifts to a custodian under a uniform gifts or transfers to minors act, if, in the opinion of my attorney-in-fact, such gifts are advisable".

Some Kentucky attorneys counsel against gifting clauses because of the potential for exploitation by the agent. This concern is valid and raises an important consideration.  This selection should be done carefully. If gifting is unwise, completely eliminate the provision.

VI. Gifting in the Medicaid Context

Another important area where specifically stated powers are essential relates to asset preservation or Medicaid planning.  For aging clients, Medicaid may be a vital consideration because it is the primary source of payment for long term nursing home care.  Without a gifting clause in a power of attorney, the only available alternative for a Medicaid applicant to preserve her estate is to subject the principal to guardianship proceedings and petition the court for permission to gift. [15] 

A practitioner should be knowledgeable enough to understand the effect of gifting in the Medicaid context and have a conversation with his/her client about the consequences of gifting in relationship to gift taxes and the effect gifting has on Medicaid eligibility.  Many clients are familiar with the federal annual gift limits.  Many power of attorney forms contain a gifting clause that limits gifts to the "annual exclusion for federal estate tax purposes."  There is very little benefit to the client, however, to limit gifting to that amount. Effectively the language prevents Medicaid planning. [16] Annual gifting limits in the document only complicates Medicaid eligibility without substantially preserving assets. With the federal unified gift amount now established by the American Tax Payers Relief Act of 2012 at $5,120,000 per person (linked to the annual CPI) and no effective state gift tax in Kentucky imposed on a decedent's children, an unlimited gifting power, judiciously used, is essential for Medicaid asset preservation. If the attorney is not familiar with the Medicaid limits on gifting, he or she should consult with a qualified elder law attorney.

Where Medicaid is involved, the objective of gifting is often to preserve the family home from Medicaid recovery.  As stated above, the instrument must specifically empower the agent to execute a deed.  KRS 382.370 and KRS 382.335(1) require that an originally executed power of attorney, executed with a scribner’s signature, be utilized to transfer land, be recorded in the county where the land is located as proof that the agent had the authority to execute a deed as attorney in fact.  Statutory language specifically provides: "The power of attorney possesses the power to sell, exchange, quitclaim, convert, partition, grant an option on, abandon, gift or otherwise dispose of all or any part of my real or personal property or my interest in such property, including, but not limited to, automobiles, stocks, bonds, and real estate owned by me individually, as a tenant in common, tenant by the entirety or otherwise, upon any terms and conditions."

As a practical matter, the attorney should encourage or facilitate the filing of his client’s power of attorney document in any county in which the client owns real estate.

VII. Additional Provisions in Power of Attorney Instruments

The following additional provisions in a power of attorney may also be useful. To facilitate Medicaid applications, a provision allowing the attorney-in-fact to interact with the Medicaid office for the principal is helpful. 

In today's medical privacy environment, a provision to allow the agent access to medical information in compliance with HIPAA is important.[17]

Since under present Kentucky law the attorney in fact is held to no standard of performance, it prudent to state in the document that the agent is required to maintain accounting records and to make those records available to the principal or others as requested. 

To permit the agent to be paid for services rendered places this responsibility on a more professional footing and leaves no doubt in anyone's mind that it is a responsible position. 

Another provision which will be important as the "boomer generation" ages will be a provision which allows the agent access to the growing and changing property interests in electronic assets including passwords to a variety of devices. Simply accessing email for an incapacitated client may prove to be impossible without such authority.

Though Kentucky does not require any witnesses to a power of attorney, other jurisdictions may. Thus, for some clients it will be prudent for the power of attorney to be witnessed by two persons to ensure that it may be used to transfer land in foreign jurisdictions.

For additional thoughts in this area, consult the chapter on Powers of Attorney, by Kelli E. Brown in Elder Law. [18]

VIII. Other Documents to Consider

For some elder clients, a psychiatric health care advance directive would be appropriate. [19] An advanced directive allows the client to name a surrogate for decisions regarding mental health care and to list instructions for mental health treatment.  The client may list specific psychotropic medications that the client refuses to have administered. The client can consent or not consent to electroconvulsive therapy. The client can list preferred procedures for emergency interventions, such as seclusion, physical restraints, and medication by injection. [20]

Advanced directives, health care powers of attorney and end of life directives for personal issues relating to health care should have the same specificity as powers of attorney for legal affairs.  The issue of health care directives, their expression and implementation has evolved over the years.  The current Kentucky Living Will statute, KRS 311.621, was adopted in 1994 and there have been many changes in end of life expressions since its enactment.  In each case, the thrust has been to make the decision process more personal. 

One of the more recent end-of-life proposals is that where the physician orders life-sustaining treatment or POLST. [21] The goal of POLST is to develop a program to improve patient care and reduce medical errors. The system would allow the physician and patient to identify a patient’s wishes regarding medical treatment and communicate those wishes by creating portable medical orders. The process is based on conversations between a physician and patient during which the physician completes a medical order detailing the patient's wishes for treatment.  The form of the order states specifically that it is to accompany the patient when the patient is transferred or discharged and is included in the medical record.  The order details whether or not to resuscitate the patient if the patient has no pulse and is not breathing.  Types of medical intervention, such as comfort-only measures or limited additional interventions or full treatment, are then selected.  These orders can also detail whether antibiotics, fluids and nutrition are to be administered. Finally, these orders detail the individuals with whom they have been discussed, the basis for the order, and the periodic review of the order.

Kentucky's living will directive and end of life decision making process needs to be revisited or perhaps supplemented by a POLST program.  Some states have a state wide register of advanced directives.  The issue of mental capacity to execute powers of attorney needs to be reviewed.

IX. Conclusion

Our attorney colleagues need to be aware of the importance to their aging clients of powers of attorney documents and be sure that these instruments adequately and specifically address the activities an attorney in fact needs to undertake on behalf of their principal when she/her can no longer act for themselves. 

Attorneys need to counsel their aging clients regarding the important functions these documents serve.  In today's financial environment, a power of attorney is often more important than a will.  The biggest risk to the estate of a middle class family is end of life expenses rather than inheritance/estate taxes.  Rather than asking the client "what do you want to happen when you die," an attorney's question to the elder client should be "what will happen if you continue to live?"  The issue will be how to accommodate any period of incapacity or simple inability to function.  Properly drafted powers of attorney and advanced directives are essential to addressing these issues and managing and conserving family assets.

ENDNOTES

[1] A power of attorney is an instrument that states an agent’s authority.  Restatement of the Law Agency, American Law Institute, Vol I Sec. 1.04(6); Id. At Sec. 3.4(1).  A principal must have adequate capacity to understand the instrument’s purpose.  The breadth of the authority granted under a general power of appointment requires comprehension of the ability of the agent to bind the principal to an agreement.  Id. At Sec. 3.04(1); see also KRS 386.093(1).

[2] In planning for unmarried partners, powers of attorney may be the most important component of an estate plan as there is no legal relationship upon which one partner can depend to access information to assist an incapacitated loved one.

[3] Id. Note 1, Supra.

[4] Couch v. Couch, 824 S.W.2d 65, 71 (Mo. App. 1991).

[5] 376 S.W. 3d 581 (2012).

[6] Id.

[7] Id.

 [8] Id.

[9] Note 1, Supra at Sec. 1.04(1).

[10] Priestly v. Priestly, 949 S.W.2d 594 (Ky. 1997).

[11] KRS 386.093(6).  Practitioners may advance the argument that a general power of attorney granted prior to the 2000 amendment may not require an express gifting clause.  It is recommended, however, that if possible, the attorney have an executed a document with specific gifting language because without it planning for an incapacitated individual may have to be approved through a guardianship proceeding.

[12] 74 S.W.3d 783 (Ky. App. 2002).

[13] 7 S.W.3d 379 (Ky. 1999).

[14] KRS 386.093(6).

[15] In a Minnesota Bar Ethics case, the Minnesota Supreme Court publicly reprimanded and placed the license of an elder law attorney on probation for advising his Attorney in Fact to make gifts in a Medicaid plan contrary to the express authority in the instrument.  In re: Petition for Disciplinary Action against Donald W. Felt, Minn S.C. A09-1862.

[16] Such a clause might indicate in a guardianship context that the respondent wanted to limit gifts, not maximize them.

[17] The Health Insurance Portability and Accountability Act provides for specific titles of representatives such as agent and representative.

[18] 23 Leibson and Faller, KENTUCKY PRACTICE, ELDERLAW (2012).

[19] KRS 202A.422: see also KRS 202A.430, Form of advanced directive for mental health treatment.

[20] KRS 202A.422.

[21] An excellent research report entitled “Improving Advanced Illness Care: The Evolution of State POLST Programs (2011)” is available from the ABA web page.  It was co-authored by Charles P. Sabatino of the AVA and Naomi Karp of the AARP Public Policy Institute.  It lists all jurisdictions currently cooperating in similar programs.  The objective is to provide a specific medical directive from a physician rather than the legal community.  Many vie this process as a medical rather than a legal matter.