Baby Boomers are turning 65 at the rate of 10,000 per day. Alzheimer’s disease affects 1 in 9 people over age 65. And it isn’t just aging. Stroke is the #5 killer in the USA and 49% of Americans have at least one risk factor for stroke. About a third of people hospitalized for stroke are under age 65. Stroke is the number one cause of long-term disability. It isn’t a fun set of stats, but it should remind us that estate planning isn’t just about passing assets at death. It also should help with the management of assets during life and address the management of our affairs and carrying out of our wishes should we be unable to manage our own affairs.
The gap in many estate plans is effective planning for incapacity. Yes, many draft a Living Will along with their estate plan and many also put a Durable Power of Attorney in place, but are they really thinking through the implications and the best tools for the job? There are many tools, both financial and medical, that should be considered. Here we will address these tools as well as the difficult topic of defining incapacity.
Generally speaking, incapacity means not having the ability to make effective decisions or to manage oneself or one’s affairs. I think we can all agree that when someone is diagnosed with Alzheimer’s they are considered incapacitated, but what about familiar themes like when to take the car keys away from Dad or tell Mom she should move to assisted living. It is the period between completely lucid and clearly incompetent that gets sticky. And it doesn’t help that one of the symptoms of diminished capacity is paranoia, often manifested in thinking that people trying to help don’t care or are only after their money. It also doesn’t help that elder abuse is, in fact, a problem. The reality is that identifying, well in advance of an issue, the people you trust to make financial and medical decisions on your behalf and putting the right documents in place to empower them is important. Then, in many situations, decisions can be made regardless of the level of competency. Documents should also define how competency is determined when it is a “trigger.”
Some of the signs of diminished capacity include: memory loss, decreased or poor judgement, difficulty understanding simple concepts, mood swings, trouble communicating, confusion with time and place, difficulty with familiar tasks, trouble understanding visual images and spatial relationships, withdrawal from work or social activities, misplacing things and losing the ability to retrace steps. As we age, all of us will experience some form of diminished capacity. The point where we are crossing the line into incapacity is a legal issue which varies by state and the facts and circumstances of the individual.
There are many tools to help manage the financial and medical needs of clients with incapacity. On the financial side, familiar tools like the Account Title, Powers of Attorney, Guardianship and Revocable Living Trusts are necessary. On the medical side, Living Wills, HIPAA Authorization, Physicians Orders for Life Sustaining Treatment, Durable Power of Attorney for Healthcare, and Long-Term Care Insurance are appropriate. Let’s briefly discuss the functions and some cautions of the above. We will start with the financial management tools.
An account can be titled in many ways, but how does someone else manage your affairs? In an account titled solely in my name, no one has advanced authorization to access the account. An outside power like a Power of Attorney, discussed later, is needed. Joint Tenancy gives access to each joint tenant but can cause other problems since it involves the legal ownership of the property. Therefore, when it is a joint tenant other than your spouse, imagine the problems that can arise if your son were divorcing or your daughter caused damage in a DUI. Having non-spousal joint tenants can be problematic as well. Instead, think about granting Signature Authority which gives right to sign without ownership issues. And, of course, in the name of a Trust, when one is being used in the plan, where Trustee can access the assets.
In case people do not plan, every state has the ability for the court to appoint a Guardian or Conservator to make decisions for the Ward (the incompetent person). Guardianships are generally to be avoided as they can be expensive, time-consuming, and public, but at least there is a backup plan for those who do not have one.
Power of Attorney
In a Power of Attorney, the person appoints an Attorney-in-Fact to sign on their behalf. This can be a broad set of powers (general power) or quite restricted and specific to certain issues (limited power). Most important is that the power is “Durable,” meaning it is valid even during incapacity. This has become such a problem that some states have begun deeming a power to be durable in order to avoid guardianship proceedings. Be aware that many firms prefer these signed on their own forms or have troublesome policies meant to protect the account holder but can be tough to navigate especially when time is of the essence.
Assets in a trust are managed by the Trustee on behalf of the beneficiary. Keep in mind that the trustee manages only funds owned by the trust, so retitling of assets is important. Likewise, seamless transition should take place from trustee to trustee, but when the client is their own trustee the paranoia can set in upon anyone suggesting removal, so a well drafted Incapacity Clause should identify how incapacity is determined. It is generally better to turn over power sooner rather than later.
Now, let’s move to a brief review of some of the tools available for medical decision making.
These go by other names like Healthcare Directive or Advanced Directive and state your wishes for end-of-life medical care. These are legal in every state, just make sure your physician is aware and willing to comply.
HIPAA (Health Insurance Portability and Accountability Act of 1996) provides Data Privacy and Security Provision for Safeguarding Medical Information, certainly a worthy goal; however, the 2003 Privacy rule can cause trouble getting information, if not properly authorized. Check your planning documents and with physicians and hospitals for authorization.
POLST – Physicians Orders for Life Sustaining Treatment
A POLST does not replace an Advanced Directive or Living Will, nor a Durable Healthcare Power of Attorney; they are designed to work together. These are, in essence, a portable medical order for the specific medical treatments you want during a medical emergency. Since they are a doctor’s orders they must be complied with the provider. A POLST replaces the DNR or Do Not Resuscitate instructions and are used mostly for seriously ill and end-of-life care. As a state law instrument, the name can vary in different states.
Durable Power of Attorney for Healthcare
These are like a Financial Power of Attorney, but for medical decisions allowing the Attorney-in-fact to make decisions and sign on behalf of the Principal.
Long Term Care Insurance
It is harder to find standalone policies due to low interest rates and changing demographics and not many firms offer pure long-term care insurance. The American Association for Long Term Care Insurance (AALTCI) states that sales are down from 750,000 policies in 2000 to 105,000 in 2015.
One option is to look to Life Insurance policies that build cash value quickly and allow lifetime distributions for long-term care, a ‘hybrid’ approach, which usually requires lump-sum funding.
So, with the Baby Boom generation reaching age 65 at a rate of 10,000 a day and medical advances keeping us alive more effectively than ever, we have to be concerned whether we will live on as our brain develops symptoms of diminished capacity. In these cases, we need to ensure that our wishes continue to be followed and that we are cared for both financially and medically in accordance with our wishes. Advanced planning can make a huge difference in the quality of life, care, family harmony, and finances.
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