Question: Although my wife and I know that we should begin planning for possible incapacity, we are concerned about several things. Our daughter, age 50, has been married four times, and her husband latest is an alcoholic. We have bailed her out financially many times. Our son, age 45, has only been married once, but both he and his wife are financially irresponsible spendthrifts and have gone bankrupt twice.

We have wills that leave everything to each other and then in trust to our six grandchildren because this is the only way we know they will get anything. But we are worried about being taken care of should we become incapacitated. Although we know we need powers of attorney, we do not want to give either of our children access to our money because they will spend it all on themselves, not on us, and there will be nothing left for our grandchildren.

Since we don't have a lot of money, we are not attractive to bank trust departments which say they will handle things for us at a charge of five percent of our assets per year. What are our options?

Answer: The decision of whom to trust to handle finances during incapacity is sometimes a tricky one as your situation clearly points out. Since you and your wife trust each other, we suggest that each of you sign a durable power of attorney appointing the other as agent (attorney-in-fact). This means that should either you or your wife become incapacitated, so long as the other is capable of handling the finances, there will be a trusted agent in charge. However, if both of you are incapacitated, or if the spouse acting as agent becomes incapacitated or dies, each of your documents should provide for the appointment of an alternate agent.

Since your children are not candidates, you might consider appointing a non-depository trust company which can handle these duties for a fee which of one to two percent per year. Or you might approach a trusted relative or friend to act on your behalf under these circumstances. If you appoint a third person, you may want to include language in your documents that requires a fidelity bond and/or a provision that the acts of the agent be reviewed each month by an accountant who can make sure that the agent is carrying out the duties required by your power of attorney. If there are discrepancies, your power of attorney should require that an application be made to the probate or surrogate court for a conservatorship.

While some might consider using a living trust in this situation, if there is going to be any Medicaid planning, this might not be a good idea, and you might spend more money in the planning process and end up with the same result.

So explore your options with a qualified lawyer who can help you take the next step.

Question: I attended a seminar given by a financial planner where we were told that if I went into a nursing home, I would have to sell my home to be able to qualify for Medicaid. Is this correct?

Answer: No. Under almost every conceivable circumstance, the principal residence of a nursing home resident is classified as a non-countable or unavailable resource which is not considered in the calculation of Medicaid resource limitations.

To make the principal residence "unavailable," the nursing home resident need only intend to return to his or her home. The vast majority, if not all, Medicaid applications ask whether the nursing home resident intends to return home. If answered affirmatively, Medicaid does not count the value of the home against the resource limitation - no matter the condition of the resident who may have no chance of ever going home.

Despite this very clear rule, we have seen many nursing home residents and their families being told to sell the home in order to pay for nursing home care. This is generally very bad advice because most sales convert a non-countable resource (the principal residence) into a countable and available resource (cash) which will probably make the nursing home resident ineligible for Medicaid for a period of time.

If not sold, the home may still be subject to estate recovery at the death of the nursing home resident who has collected Medicaid. Because of these complex issues, careful planning with a lawyer, not a financial planner, is essential.