Never Underestimate the Importance of a Health Care Proxy and a Power of Attorney

By: Louis W. Pierro &  Lynn M. Coles, Esqs.

Today, most people have heard about health care proxies and powers of attorney.  The two documents, referred to together as “advance directives”, help avoid costly time consuming and emotionally draining guardianship litigation.  Not all health care proxies and powers of attorneys are created equal, however, and this article will discuss the critical components that each document should contain, many of which are missing from a typical health care proxy and power of attorney. 

A standard Health Care Proxy that is available on-line, from the NYS Department of Health, will enable a person to nominate an individual to make medical decisions on the person’s behalf during any period of time that the person is incapacitated, and nothing more.  It fails to contain language outlining the person’s wishes regarding medical treatment, commonly referred to as a “Living Will”.  The Health Care Proxy can, and in our view, should incorporate such “living will” language that sets forth the person’s wishes regarding what treatment the person wants to receive and the situations when the person wants treatment withheld.  This will provide the nominated agent with the authority to carry out the person’s wishes, and weaken any argument that the nominated agent is unaware of the principal’s specific intent. 

Another essential feature of a Health Care Proxy that is not available in the on-line forms is the language that conforms the document to the Health Care Insurance Portability and Accountability Act ("HIPAA").   HIPAA is the privacy act that protects the information of an individual receiving health care.  This is a good thing.  However, a doctor may not release a person’s medical information without this requisite HIPAA waiver language to the very agent entrusted to make decisions.  If the person is incapacitated upon entry into the hospital, the person cannot sign the waiver at that time.  Therefore, such HIPAA waiver language should be included into every Health Care Proxy to ensure that the nominated agents can always access the person’s medical information.

While a Health Care Proxy handles the medical side of things, a Power of Attorney handles financial decision-making.  A Power of Attorney is used to appoint an individual to manage a person’s financial affairs.  There are two types of Powers of Attorney – one is a Durable Power of Attorney (which is effective upon signing) and the other is a Springing Power of Attorney (which is effective upon the person being declared incompetent).  The New York State statutory Power of Attorney is available on-line, but only provides the nominated agents with limited powers.  In addition to the standard powers, a well-design Power of Attorney should enable the nominated agent to deal with every aspect of the person’s financial needs. 

These expansive powers should include the ability to implement an estate plan or long-term care planning for the person, such as full gifting and trust making powers.  Such expansive powers will help prevent the need for a guardianship in the unfortunate event the person becomes permanently disabled or incapacitated.  In addition, these powers can enable an agent to implement an estate tax plan or a long-term care plan that can shelters assets from taxation and Medicaid liens.  For example, an agent can create and fund a revocable living trust on behalf of the principal, who is married.  This revocable living trust can be designed to fund a by-pass trust (i.e. credit shelter trust a/k/a family trust) to shelter the principal’s full Federal estate tax exemption amount (or just the New York State estate tax exemption amount) from taxation at the death of the surviving spouse.  Another example is the agent can create and fund an irrevocable Medicaid trust that will hold the principal’s assets, in order to make the principal eligible for Medicaid benefits and protect the assets from any Medicaid liens upon the principal’s death.

To summarize virtually every client needs a Health Care Proxy and a Power of Attorney.  However, to take full advantage of the benefits of these documents, one should seek the advice of a qualified Trust and Estates Attorney who can properly draft the documents. 

If you have any questions about the matters discussed in this e-letter, please contact Louis W. Pierro or Lynn M. Coles at (518) 459-2100.  Prior Tax Planning E-Letters may be accessed at www.pierrolaw.com.

**To the extent the preceding text contains an opinion on one or more Federal tax issues, such opinion was not written to be used and cannot be used for the purpose of avoiding penalties.  If you would like a written opinion on the Federal tax issues addressed in this email, upon which you can rely for the purpose of avoiding penalties, please contact our office.