Careful That Your Parents' Bills Don't Become Yours

(This article appeared previously on MarketWatch.com.)

Many older people moving into a nursing home or retirement community are experiencing cognitive decline. In legal terms, they no longer have the capacity to make financial or medical decisions for themselves. So a trusted person — usually an adult child — will sign the entrance contract on their behalf as power of attorney.

Yet elder law attorneys report a widespread misunderstanding of what it means to sign a contract for a cognitively impaired loved one, whether that person is entering a care facility or simply signing off on a cellphone agreement.

(MORE: Power of Attorney for Your Parents)

If you put your name in lieu of your parent’s on a contract without adding any additional language, you’re not just stating that you’ll make payments on your parent’s behalf using your parent’s money. Instead, you’re, in effect, acting as a guarantor who is personally responsible for the payments.

Issues like this create problems for families in a few spending areas, including hospital and doctors’ bills not covered by insurance, which a patient or patient’s representative usually signs for in advance of treatment.

But the stakes are particularly high when it comes to a retirement facility or nursing home, given the vulnerable nature of the residents and fees that can reach $10,000 monthly at some places.

(MORE: Can You Afford Your Parents' Longer Lives?)

Unknowing family members may think “responsible party” is a contact person to be notified in the case of emergency.

Make Your Role Clear When Signing

Estate plans usually involve what’s known as a durable power of attorney. These allow the trusted individual — legally, the “agent” — to retain power of attorney even when the person who created the document — the “principal” — has become incapacitated. (Older people who retain their faculties should always sign documents for themselves, elder law attorneys say.)

If you’re named the agent for your parents on a financial power of attorney document, you will have access to your parents’ bank and brokerage accounts to pay the retirement or nursing home on their behalf. But unless you want to personally guarantee the payments, you’ll have to take an extra step when signing the residential contract, experts say.

(MORE: Are You Set to Pay a $262,800 Nursing Home Bill?)

The best way to separate your responsibility as power of attorney from any personal financial obligation is to sign your parent’s name as the responsible party on the contract, and after that write, “by [your name] as power of attorney,” followed by the date, said Bradley J. Frigon, an elder law attorney in Denver and President of the National Academy of Elder Law Attorneys.

Those who don’t take this step will generally find themselves on the hook if payments aren’t made.

This means that the nursing home or retirement community can come after you if your parents run out of money. If you don’t pay the fees, they could send a collection agency after you. Failure to pay could also affect your credit score. Worse yet, it could cause the facility to take steps to evict your loved one.

What’s more, many retirement communities will only deal with one responsible party per resident, said Andrew Carle, executive in residence at the program in senior housing administration at George Mason University in Fairfax, Va. and a former retirement community administrator.

Often, a group of siblings will come in and say they plan to split the fees among themselves each month. That kind of internal agreement is fine, Carle said, as long as the checks come from one person. A facility can’t be put in a position to juggle multiple checks from multiple family members or to act as a mediator if family members disagree.

Don't Mess Up Medicaid

An adult child who mistakenly signs on as guarantor can mess up a parent’s Medicaid application, Frigon said. A state-administered program, Medicaid pays certain long-term care expenses for those who have exhausted their assets and meet strict income criteria.

Facilities that take Medicaid — not all do — cannot reject Medicaid payments made on a resident’s behalf because the adult child mistakenly signed on as guarantor, Frigon said. Yet that mistake could result in a processing delay before the older person is approved to go on Medicaid, during which time the guarantor is responsible for continuing to pay the rent and all other fees, Frigon noted.

Elizabeth O'Brien is a retirement healthcare reporter for MarketWatch. Contact her at Elizabeth.O'[email protected].

By MarketWatch