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

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

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!!

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

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

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

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.

Durable Power of Attorney

• Texas Probate Code (TPC), Ch XII– “Durable Power of Attorney Act”

• §482 Definition:1. Written instrument2. Signed by adult principal3. Contains ‘words of durability’ and

• NOT required to match statutory form

4. Is acknowledged

• Remains (or becomes) effective upon the principal’s disability

• Durable PoA are immensely useful and recommended in nearly all situations

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

“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

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

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

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

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

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

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

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

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

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

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

Special Needs Trusts

• Pros:– Enable beneficiaries to receive (or continue

receiving) government benefits– Avoids forfeiting benefits when

beneficiaries inherit

• Cons:– Highly specialized– Highly restrictive

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

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

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

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

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

Questions?