Two months ago, I wrote an article for the Kansas Senior Times entitled, “Living With a Plan&rdquo (June 2006). The article may be understated as to its importance.
These last several weeks, I have had the opportunity to speak to seven different groups, the last being a group of healthcare professionals. I have been impressed by several factors, not the least of which is each of the groups’ desire for information, and, secondly, the lack of understanding of the need for an immediate comprehensive plan. What needs to be considered as part of a comprehensive plan?
Long Term Care. You need to plan on the probability that you are going to need assisted living or nursing home care. Generally, nursing home or assisted living care is paid for by three different methods: (1) Self-pay (you use your own resources to pay for your care); (2) long term care insurance (insurance you acquire, hopefully while you are healthy, to pay all or a portion of your stay in the long term care facility; you want to be sure that the policy covers in-home care though that provision may cost you extra); and (3) Medicaid (a government program for which you must qualify by having limited resources). As a practical matter, most people will end up using a combination of two or more of the above methods. For instance, someone may purchase long term care insurance that is intended not to cover the full cost of their institutional care, and plan on supplementing that insurance with utilization of their own assets or income. If their assets and the long term care insurance are both exhausted, or in the event that all the assets are exhausted leaving only long term care insurance, Medicaid may be the next step.
The Deficit Reduction Act of 2005 changes many rules. It certainly increases the necessity of planning well into the future. The harshness of the Act may dictate the type of giving a person engages in, whether it is to family members, churches, colleges or other such groups. With proper planning, such gifting can still be accomplished, as long as long term plans are entered into that will protect such giving. The time to start planning for long term care is now.
Will/Trust. Every person needs a Will or a Trust with a Will. Such documents are used to transfer property upon a person’s death. Without such a tool, a family will expend more money and have more problems in administering a deceased person’s estate. (Without a Will, a person’s assets may have to be administered through an intestate proceeding. Such proceedings are generally expensive and time consuming.)
Many will try non-Will/Trust alternatives such as joint tenancy, pay-on-death accounts, and transferon- death deeds. But what if an asset is not so titled? If all assets are established so that they transfer without utilization of a Will or Trust, who will be responsible for the expenses of the last illness and/or the funeral? What happens if someone you have named on an account dies or becomes incapacitated? What happens to their interest in the account? Every person needs a Will or a Trust with a Will as part of their long term plan.
Power of Attorney for Health Care Decisions. Everyone needs a Power of Attorney for health care decisions. In it, the person can designate person(s) (called the attorney-in-fact or agent) who will be in charge of making health care decisions and making discretionary decisions for that person, should the person become so incapacitated that he or she cannot make a decision. The Power of Attorney needs to designate the agent’s authority and limitations. In addition, the Power of Attorney for health care decisions should designate whom the person would want to be their guardian in the event any guardianship proceedings are instituted.
It is important to note that not all Powers of Attorney are the same. They need to be tailored to the particular person and/or that person’s chronic illness and their care giver support system.
Most Powers of Attorney are “springing&rdquo (they do not go into effect until the occurrence of a certain event). A definition of disability and the triggering methods for the springing event is critical.
Power of Attorney for Business Decisions. This Power of Attorney allows for the attorney-in-fact to conduct the business affairs of the person who granted the Power of Attorney, should the person become disabled or incapacitated. Without it, a conservatorship will have to be filed that will require additional and unnecessary costs to the family. In the Power of Attorney, the person will have the ability to give the attorney-in-fact expanded or restricted powers, in accordance with the person’s wishes.
As under the Power of Attorney for health care decisions, the Power of Attorney for business decisions needs to be tailored to the particular person. The Power of Attorney may need to address the person’s business interests. Does the Power of Attorney empower the attorney-in-fact to operate the business?
Again, most Powers of Attorney for business decisions are “springing.&rdquo What events will spring the Power of Attorney into force? The document embodying the Power of Attorney should be designed to establish the procedures for defining disability and triggering the springing powers.
Living Will. In the last ten years, we have spent almost as much time in our office discussing Living Wills with our clients as we have spent on how they want their properties divided in their Wills. In light of the Karen Ann Quinlan, Terri Schindler Schiavo and Nancy Cruzan cases, it is a must-have document. It needs to be tailored to the exact wishes of the person making the Living Will.
After the Living Will is completed, there needs to be a discussion between the person making the Living Will and his or her family on what their wishes are, so that there is harmony at the time that the Living Will comes into use. We call this “the Talk.&rdquo “The Talk&rdquo needs to be with your children and with your parents, as well as your spouse.
Insurance. Another tool that you need to consider as part of your plan is insurance (life, health, disability and long term care). Many times as couples grow older, there is a propensity to eliminate insurance. I would caution you to at least keep enough insurance to retire any debt that you have, so that your family is not burdened with deciding what property to sell to pay off debts.
Be certain what type of insurance that you have. It is not unusual for me to find that people misinterpret disability insurance as long term care insurance. It is not unusual for me to find someone who is confused about a policy. They think that they have a large life insurance policy, when in fact it is nothing more than an accidental death policy (a policy that only pays in the event that they are injured in an accident).
Conclusion. It is never too late to plan. However, the longer you wait, the options available to you may decrease. As an example, if you develop health problems, there may be certain types of insurance that are no longer available to you or only available to you at a greatly increased cost. If you do not have a plan in place, certain gifts that you have given may jeopardize your ability to receive nursing home care. Certain assets that you may think are protected may be in jeopardy if you need long term care, and, as well, liquidation of those assets to provide long term care may have substantial bad tax implications.
Stay clear of internet or do-it-yourself “forms.” The risks are real and the risks are great. With the changes that are occurring in the law, be sure to consult with an attorney experienced in Estate and Medicaid issues.
Start planning now. Certainly, your plan can be modified in the future as your situation evolves, but do it now.