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Advice for Caregivers Managing Legal, Financial, and Medical Decisions

One of the most difficult things about caregiving is the need to become authorized to act on another person’s behalf. This requires both preparation and understanding of the logistics required to be established as a designated caregiver. Since people are living longer, more senior children are becoming caregivers for their parents or those who had similar roles in their life.

There are several logistics to understand when taking this role – three key areas are legal, financial and medical:

1. Legal

Lawyers want you to have medical and financial powers of attorney for good reason. These powers are effective while a loved one is competent and remain in effect if they become incapacitated. When these documents are prepared and signed, have an informed conversation with the attorney or paralegal who is assisting you. Ask questions and find out what specific authorities this document grants you and what powers it does not. Find out what you should do if it needs to be invoked or legitimized. Learn if the attorney(s) can be reached in an emergency situation and if a doctor needs to certify incapacitation. Knowing where the papers need to be filed, the correct state (if the caregiver and the person receiving care are in different states) and how soon they are processed are important questions to be answered.

A Power of Attorney can be granted to more than one person on behalf of the person receiving assistance. The powers can be limited or all encompassing. Example of typical limited powers would be for medical decisions or specific financial access or control. Each state has specific laws regarding the creation, use and limitations of a Power of Attorney document. People who live in more than one state or who travel frequently should consider establishing valid documents in more than one state.

If the person receiving care becomes incapacitated, a valid durable power of attorney will prevent many issues. The most common problem with an invalid Power of Attorney is the caregiver(s) will require a court to grant a conservatorship to gain the control needed to provide appropriate care. Many third parties (like banks) are hesitant to accept financial Power of Attorney documents because they may be liable if it is illegitimate. They typically need time to ensure the validity of the document and may wish to consult with the attorney who prepared it. In some cases, the third party may also require affidavit (a sworn written statement) that states you are acting legally, which will relieve them of any liability issues. As long as you are acting in the best interest of the person you are representing and within your granted authority, there should be no problems other than the slow and bureaucratic nature of this process.

A “springing power of attorney” is invoked only when certain conditions specified by your loved one are met (typically if they become mentally incompetent or disabled). One of the problems with this type of document is that it is not always clear when one can invoke a Power of Attorney, and the process for declaring someone incompetent varies from state to state.

2. Financial (Social Security and taxes)

If you are looking to help a Social Security beneficiary manage their benefits, it is important to know that the SSA does not recognize a power of attorney designation. In this case, the caregiver or family member must apply to become their family member’s representative payee. While that may be the authorization some people are seeking, it is worth noting that this designation involves a great deal of responsibility. This position requires significant record keeping of all of the beneficiary’s benefits and how they are used. If you are trying to help a family member with social security applications, claims or appeals, you will need to apply to be their authorized representative.

As a caregiver, there are tax benefits that may apply. It is advisable to discuss tax implications and benefits with a tax adviser to understand the complicated and often changing tax laws that govern caregiving. A tax advisor can help to avoid errors on tax returns that could bring time-consuming and costly problems in the future.

There are three tax deductions available to a senior caregiver of parents:

Claiming an adult-dependent exemption

An adult-dependent exemption can be claimed on a tax return if the dependent is related to the filer directly or through marriage – but does not have to live in the same home as the caregiver. (An exception is a foster parent, who must reside in the same home for a minimum of one year.) The IRS will annually set a gross income level that cannot be exceeded by the adult-dependent ($4,050 for tax years prior to 2018). These limits do not include Social Security. The full support given must be more than half in every tax year. If the support limits are shared by family members or simply do not meet the more than 50% per tax year criteria, the option to file the parent(s) as a dependent may still exist but only one person may file per dependent. Only the caregiver can file with the IRS, the adult receiving care cannot file as an individual or on a joint spousal return. Reporting an adult dependent on a tax return provides the same tax reduction as reporting a child.

Dependent care tax credit

A family member may still be claimed as with the dependent care tax credit if another person or service assisted in caring for your parent(s) while you or your spouse worked. Consult the IRS for current limits on eligible care expenses.

Medical deductions

If itemizing deductions, the adult dependent’s qualifying medical, dental, vision and insurance costs may be submitted. This may occur even if the adult-dependent was not claimed on your tax form. In 2020, unreimbursed medical expenses exceeding 10% of the adjusted gross income can typically be deducted. Example deductions: medications, dental procedures, eyeglasses, medical equipment, diagnostic devices, clinic costs, hearing aids, home modifications, home care services, transportation for appointments, some Medicare costs and premiums, required therapies and most doctor care.

3. Medical (care and insurance)

By law, hospitals and doctors’ offices must verify you have the proper permission to receive information and/or make decisions about someone's health care. A Health Insurance Portability and Accountability Act (HIPAA) authorization is necessary before a durable power of attorney becomes effective if you want to receive medical information for decision-making and insurance or billing purposes. Otherwise, without this approval, your family member’s physician and insurance company will decline to speak with you.

The role as medical power of attorney begins (also called a health care surrogate/health care proxy) when your family member can no longer make their own decisions or act in their best interest. Even if they never filed a HIPAA form with their physician, once the Power of Attorney for health care comes into effect, you are considered their personal representative and authorized to receive private health information. It is recommended to have this document drawn up by a legal professional which allow allows for questions about how the system decides when the health care proxy gets invoked. Additionally, find out if your powers are suspended if the person returns to good health.

Medicare and insurance companies typically have additional requirements before they will engage in communication. Any insurance company, prescription drug provider or state/local offices may insist that they need you to sign their specific forms. The Center for Medicare and Medicaid Services is included in this practice.

In situations which involve Medicare or insurance companies, things are often easier if you can be in the same room as your care recipient, or if you can conference them in over the phone or another three-way calling service. Even if the care recipient has difficulty hearing or speaking, it is often easier to have them answer a few simple questions directly from the Medicare representative, especially if you have not been able to complete the paperwork Medicare has requested.

Hospital employees are often worried about taking responsibility for something where the lines are not clearly drawn. They have attended many seminars learning stepping out of bounds can lead to fines and even imprisonment. Proper documentation and preparation can resolve many potential care giving challenges.

For more information and useful tools, visit the the Consumer Financial Protection Bureau's website.

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