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Why You Need a Statutory Gifts Rider

While many people may have a general understanding that a durable power of attorney (POA) allows a person to appoint an agent to take care of their finances, various issues can arise if the POA is not properly prepared and/or executed. One such issue often arises regarding the Statutory Gifts Rider (SGR), which is essential for anyone who anticipates that Medicaid planning may at some point be required, as the agent may need to make gifts/transfers as part of the planning.

Consider the following scenario.

John is an 80-year-old widow who resides in New York. In 2015, John executed a durable POA, naming his son Bill as his agent. Recently, John lost the ability to manage his finances and, thus, Bill began acting as John’s agent under the POA. Bill foresees that his father will likely have to apply for Medicaid in the near future, as it is getting more and more difficult for the family to care for John.

Bill sought advice on performing his duties under the POA, and noted that he wished to explore and engage in Medicaid planning on his father’s behalf. Bill is aware that institutional Medicaid has a 60-month look-back period, but there is no look-back period for community-based Medicaid, which enables John to remain in his home. After expending what he can of John’s assets on a prepaid burial account, home improvements which will allow John to remain at home, and other exempt transfers, Bill would like to transfer assets out of his father’s name by making gifts to his sibling and himself. Ultimately, it is Bill’s intention to decrease John’s available assets below the allowable limit needed to be Medicaid eligible (currently $14,850 in New York).

Unfortunately, John did not prepare a SGR to accompany the POA. Without one, Bill is limited to making gifts on John’s behalf to no more than $500 cumulative per year. If John does not have the capacity to execute a new POA with a SGR, he may be forced to spend down his assets on medical care before he can become Medicaid eligible. There is the possibility that Bill may be able to petition the Court for a guardianship over John’s property, while requesting the power to engage in Medicaid planning with gift giving, but (1) this will cost money in court costs and legal fees; and (2) there is no guaranteed outcome that the Court will grant him the requisite powers.

A similar scenario would arise if John needed institutional Medicaid because he was going to be admitted into a nursing home. In a scenario where John needed to apply for institutional Medicaid within the 60-month look-back period, it may be desirable to engage in gift/note planning, wherein Bill, as John’s agent, would need to make a gift of approximately one-half of John’s assets, and obtain a promissory note or annuity with the other one-half of his assets to pay for John’s medical care during the penalty period imposed by Medicaid. Without a properly executed SGR, Bill would not be able to gift John’s assets exceeding $500 per year in the aggregate, thereby forcing Bill to expend nearly all his available assets on medical care before Medicaid will approve his application.

Sadly, scenarios like the one above are an all too common occurrence. In light of the issues which arose in the above scenario, it is important to note that there is specific statutory language which must be included in a POA and SGR, and that these documents must be completed and executed in compliance with the law. An old or outdated POA is not necessarily invalid; however, it must have been properly prepared and executed pursuant to the laws of the State of New York at the time that it was executed. It is not uncommon for people to print an outdated POA from the internet, which does not contain the proper statutory language and/or do not properly execute same. Often, people attempt to create their own legal documents, or maybe even have an attorney friend give them assistance in an area of law that the friend has minimal knowledge. Such actions are usually made to save money, but often wind up costing the person more money in the long run. To ensure your POA and SGR accomplish your specific goals, it is recommended you confer with an experienced elder law attorney.