Reasons Why Seniors Might Have to Tell Children About Their Finances
In America where we value our personal independence about as much as our desire to breathe, it can come as a great shock and surprise that parents may have to confide in at least one, if not more, of their adult children regarding their finances. If they do not do so or if they have no one to trust, the consequences may be far reaching.
I thought of this recently when meeting with an adult son whose father died suddenly and whose mother, soon after, was admitted to a nursing home. Mother was in no condition to complete forms or pay bills and the monthly nursing home and medical bills began to accumulate. Her son wanted to do the right thing and pay his mother’s bills promptly but was not adequately prepared. First, he was not advised specifically what his parents owned. At minimum, children need to know where their parents do their banking and where they have their investment accounts. Otherwise, they are totally without the ability to handle finances in a crisis.
However, just as important, the son did not have a power of attorney from his mother which meant that, even if he knew where accounts were located, he had no legal authority to act on her behalf. Without a power of attorney, the law required him to file a Court action for guardianship, a time consuming and potentially expensive proposition.
Problems do not end with the guardianship.
It might be assumed that, if adult children just walked away from their parents’ problems, they would have no liability. This is not the case for children whose parents live in Pennsylvania and in a handful of other states. In July, 2005, on the same night as the now infamous pay increase, the Pennsylvania legislature passed a law that introduced “filial responsibility” into Pennsylvania.
What this means is that, under Act 43 of 2005, adult children might be sued for support of indigent parents and parents might be sued for the support of indigent adult children. Such a wide ranging change in the support laws should have been openly debated. It was not and many of the legislators who passed the law are no longer in office. Repeal attempts have, so far, been unsuccessful. This is what can happen.
If a parent’s medical bills have not been paid and the parent is considered “indigent,” a creditor might bring an action against adult children simply because of their relationship. This strategy has been used almost exclusively by medical providers and is not limited to Medicaid facilities. Over the past few years, I have seen Act 43 used in law suits by hospitals, assisted living communities, and nursing homes. Defenses are long time abandonment as a child and inability to pay a parent’s debt based on a percentage of the child’s current income.
What can be done to protect adult children in these situations?
First, as previously stated, parents should take one or more trusted children into their confidence so that bills will be paid if the parent should become seriously and chronically ill. If no child can be found who can be trusted with money, then it might be necessary to consider another responsible party, a bank trust department, or a formal Trustee. Investment advisors will typically be unable to serve as power of attorney.
Second, parents should execute a properly drafted power of attorney. Powers of attorney today are generally written to take effect immediately even if they are not used immediately. The document can be kept in a safe place until it needs to be used but the person appointed should know where that safe place is located. I tell clients to use the “checkbook across the table” rule. If they would not feel comfortable passing their checkbook across the table to the person they are appointing as power of attorney, they should not give that person the power. An agent under power of attorney must be both honest and responsible.
Third, while respecting their parents’ privacy and independence, children still need to be aware whether their parents’ bills are being paid. In the current environment it is not safe to be inattentive.
Finally, if a Medicaid application is going to be filed for a parent in a nursing home, the child needs to take whatever measures are required including obtaining professional help, if necessary, to be certain the application is granted. Action should be taken long before funds are depleted to be sure that any stumbling blocks like gifting will be addressed. While a failed Medicaid application could be the beginning of a lawsuit against an adult child for payment, a successful one along with responsible payment before it is granted, prevents action against the children.
About the Author Janet Colliton
Esquire, Colliton Law Associates, P.C. Janet Colliton has practiced law for over 38 years, 37 of them in Chester County, Pennsylvania, a suburb of Philadelphia. Her practice, Colliton Law Associates, PC, is limited to elder law, Medicaid, including advice, applications and appeals, and other benefits planning including Veterans benefits, life care and special needs planning, guardianships, retirement, and estate planning and administration.