Why would a spouse need a power of attorney?

When spouses have titled their assets jointly and named each other as beneficiaries for their life insurance, IRAs and 401(k)s, they may believe they have nothing further to do and a financial power or health care power of attorney is unnecessary. As with most decisions the decision not to have a power of attorney can have unintended consequences. Here is one I have sometimes seen in my practice.

Husband and wife have been in a trusting, longterm marriage. Since Joe has named his wife, Marie, as his beneficiary under his 401(k), they believe she would have access to his accounts if he became disabled. Actually naming Marie as his beneficiary of his 401(k) simply means that, if Joe dies, then Marie inherits the account — but Joe is living.

Joe experienced a stroke, is totally disabled, and needs long term care. When applying for Medicaid to cover Joe’s care, Marie has learned that Joe’s 401(k) can be an “available asset” under Medicaid rules. In other words the 401(k) owned by the spouse who needs care may be available for the “spend down.” Marie would need to liquidate at least some of it in order to have Joe qualify for benefits.

Although under the Medicaid rules that protect spouses referred to as the “spousal impoverishment rules” (which strictly speaking should be called the “prevention of spousal impoverishment rules”), Marie, if able to act to liquidate Joe’s 401(k), would likely be able to keep some of the proceeds as her “spousal share” but this is only if she has the power to act. If Joe, when he was able, would have executed a power of attorney giving Marie the specific power to act regarding his 401(k) and similar assets, Marie could liquidate it, move the proceeds into her name, claim a portion or all of it depending on the circumstances as part of her spousal share and file to complete Joe’s Medicaid application. Since she does not have a power of attorney allowing her to do so now, she would need to file for guardianship, a much more expensive and complicated process.

Here is another example. Donald and Teresa own their home as tenants by the entireties. Teresa becomes totally disabled due to a serious fall. Don wants to sell the home and move both of them to a senior community.