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Friday, January 29, 2016

What if the POA needs to use assets for care and seems to contradict the will?

A person acting under a power of attorney is expected to look at the will of the person they are looking after, and to honour the will to the best of their ability. But what happens when the current needs of the person will make it impossible for the power of attorney to hang onto assets for future beneficiaries? A reader stuck between that particular rock and hard place recently wrote to me about this situation. Her note and my response are below:

"My dad still has a mortgage on his house. He has just been diagnosed with ALS. He will be moving into a long term/hospice soon. How can I as his EPA pay the home and his mortgage. Do I sell the house? His will states house and property are to be sold and divided between 5 siblings. So I can't really sell to pay for home right? What should I do? Assume the mortgage? Get an agreement of sale and move into his house? Then when he passes do I sell and have to move again?"

Making decisions when you're acting under an Enduring Power of Attorney (EPA) is certainly not the easiest thing to do. So far though, you sound as if you're doing everything right. You have looked at the will, as someone acting under a power of attorney is supposed to do, and you are doing your best to respect your father's wishes as set out in the will.

I understand the quandary you're in. You are trying to follow his expressed wishes by preserving the house for his beneficiaries, but you can't afford to do that. Keep in mind that your main job under the EPA is to make financial decisions that are in the best interests of your father. You have to meet his needs, which are more important than the interests of future beneficiaries.

The risk is that after your father's death, the siblings will see the will and expect to receive the proceeds of the house. They may blame you for what they see as reducing their inheritance. If there were other assets, such as bank accounts, that could be used to finance your father's care, it would be a good idea to use those first, in order to respect his will as best you can. But your question suggests that the house is his main asset, and possibly his only asset of large value.

Someone acting under an EPA in your situation is legally able to sell the house because of the responsibility to act in the best interests of the person who appointed you. I would suggest that if you do sell the house, keep very careful records of the sale, and make sure you keep the sale proceeds strictly separate from your own money. Use the sale proceeds only for your father's needs, and keep receipts and documents. If there is money left after your father passes away, give that money along with a full copy of your records to the person acting as executor of the estate.

Your careful records, not just of the house sale but of your father's complete financial affairs, will protect you if one of the siblings becomes upset and threatens to sue you for the loss of their inheritance. You will be able to show that you made a careful, considered decision based on your father's needs, and there was nothing fraudulent or malicious or negligent about it.

In any estate where a beneficiary is left a gift, there is a risk that the asset being left to them will be sold, lost, given away, substantially altered, or otherwise disposed of between the time the will is made and the person passes away. This happens frequently, and is known as an "adeemed" gift.

When your father moves into the hospice, you will be faced with downsizing his possessions and furniture. You should follow his will instructions to share the household items among the people who are future beneficiaries, rather than selling them or paying to put them in storage.

Another option open to you is renting out your father's house once he no longer lives there. This may or may not be a good option, depending on how long he resides in the hospice and how much work it would take to get it cleared out and ready for renting. This might also be affected by rental rates in your area, and whether there would still be enough to pay for his care once the monthly mortgage payment was made.

I also suggest that you be up-front with the other siblings and let them know what's going on with the house. Perhaps one might wish to buy it or rent it. At the very least, you will have the opportunity to explain to them that you are doing what's best for your father.


1 comment:

  1. Excellent post. As you stated the POA has to 'keep good records' and share info with the siblings. The first priority is the father and his assets that will pay to look after him. If the siblings want to all share in the costs of looking after the father then that could work and then they would share in the Will ie the house when he passes. Somehow, I don't think the siblings will want to do that. Solution? Sell the house. Father comes first.

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