HIPAA-compliant Estate Planning

The law of unintended consequences has struck again. Because of it, some standard Estate Planning tools need to be reworked, and existing plans might need some revisions in the next few years.

Congress decided Americans’ medical privacy needed more protection, so in 1996 it passed the Health Insurance Portability and Accountability Act, known as HIPAA. Regulations covering the privacy portion of HIPAA finally were issued in 2003. Estate planners are just realizing that these protections actually interfere with many estate planning tools, making it more difficult to protect an individual’s interests in some cases.

The heart of HIPAA’s privacy rules is that doctors and other medical personnel cannot share medical information with anyone other than the patient without the patient’s written consent. Unlawful disclosure can result in civil and criminal penalties, even losing the right to practice medicine.

Naturally, after learning of the rules many doctors are reversing time-honored practices of counseling family members and friends of patients with serious medical problems. They are more reluctant to share medical information with anyone. HIPAA does allow release of information by doctors when it is in the best interests of the patient as determined by the health care provider. But understandably few doctors are interested in being among the first to test the limits of this vague provision.

HIPAA also might make it illegal for someone who legally received information from a doctor to disclose it to anyone else.

The new rules effectively negate several protections in standard estate plans.

A good estate plan will provide for someone to take over decision making upon the incapacity of a key individual, such as the estate owner, a trustee, or an agent holding a power of attorney.

One tool that is not affected is the durable power of attorney. This POA gives a named agent the legal power to manage the principal’s financial affairs or anything else listed in the document. The durable POA takes effect as soon as it is signed. You expect that the agent won’t use the power unless you become incapacitated, but legally he or she could.

The springing power of attorney is another matter. Under this document there is no transfer of power until the principal is declared to be incapacitated by whatever process is described in the document. Since HIPAA discourages doctors from sharing the principal’s medical information, it can be difficult for the agent to establish that an incapacity exists and begin exercising power under the document. The springing POA always has been unpopular with estate planning attorneys. HIPAA is likely to sharply restrict its use.

HIPAA also affects many trusts, including revocable living trusts. Trusts usually provide that a trustee will be replaced after becoming incapacitated. Again, it is difficult for this transition to take place if doctors will not share medical information with anyone other than the patient. It could be very difficult to show a trustee is incapacitated and that the substitute trustee should begin exercising power.

The good news is that a person who is the agent under a health care power of attorney automatically is a personal representative under HIPAA and authorized to receive information.

Here is how to deal with HIPAA in your estate plan.

Medical information can be released to or discussed with someone named in writing as a “personal representative” under HIPAA. The personal representative has the same rights to information as the patient.

One solution is for a power of attorney to state that the agent and any successor agent is considered the personal representative under HIPAA. That should enable the agent to get enough information to determine if the principal is incapacitated and take the appropriate action.

The succession clause of a POA or trust usually names one or more specific people who are responsible for deciding if the fiduciary is incapacitated. That clause also should state that these people are personal representatives under HIPAA and are qualified to receive medical information.

The easiest option might be to execute a HIPAA release. This document, specifically recognized in HIPAA, lists certain individuals and specific medical information. Release of the information to these individuals is authorized under HIPAA. All the disclosure needs can be covered in this one document by naming family members, friends, financial advisors, trustees, holders of POAs, and anyone else who might need the information.

To be effective, a HIPAA release must meet certain requirements. A member of the National Academy of Elder Law Attorneys can draft a release for you. See www.naela.com.

This solution might not be effective for everyone. State laws can stricter than HIPAA. In some states the release is valid only for a certain length of time, such as 90 days in Washington state. A summary of state privacy laws is available from the Health Privacy Project at www.healthprivacy.org.

An alternative some attorneys are recommending is to avoid using any medical judgments or standards in the process. Instead, the estate planning documents can appoint a committee to decide if someone is incapacitated. The committee can use its own information, standards, and judgment. The documents can appoint a committee that includes family members, trusted friends, clergy, and financial advisors. The principal decides when drafting the document if a decision requires a majority, two-thirds, or unanimous vote of the committee.

A solution that goes one step further is to drop the incapacity requirement. Instead, let a committee replace a fiduciary for any reason.

If the traditional documents are in use, taking the doctor to court to obtain the medical information always is an option. But one goal of the estate planning documents is to avoid the cost, delay, and publicity of court proceedings. It is better to find a solution that greatly reduces the probability of a court action.

Remember, whichever method you want to use also must be acceptable to the financial institutions involved. The institutions must recognize that power has transferred to the new person.

Estate planning attorneys apparently are reluctant to tell clients that estate planning documents should be revised because of HIPAA. Only recently clients were told to revise their documents to reflect the 2001 tax law. Every estate plan should be reviewed every couple of years for changes in your situation or the law. At your next review, be sure to ask if your plan is HIPAA-compliant.