What should one do after an unfortunate medical diagnosis suggesting that he or she will lose mental and physical abilities in the near term? Areas that need addressing are testamentary dispositions, health care preferences, long-term care preferences and substituted decision-making.

Estate planning

Usually, estate planning involves a substantial amount of guesswork and ambiguity. How far into the future will it be before the plan is needed? What family circumstances might change in the interim? What will the assets be? What will the tax laws be like?

Many of these uncertainties may be swept away when someone is on the verge of incapacity because this could be the final review of testamentary documents. Beneficiaries need to be reviewed. A statement of intent in the will or trust is advisable, so as to aid in the understanding of that intent. 

This is also a good time to determine whether any of the probable beneficiaries has a disability. If so, care needs to be taken so that their inheritance does not compromise his or her access to government benefits.

Revocable living trusts

A revocable living trust is a superior tool for asset management in case of incapacity because a trustee typically will have an easier time dealing with brokers and banks than would an attorney-in-fact.

The trust document also needs to be reviewed carefully if an onset of incapacity is expected. For example, should the trustee be empowered to make distributions to heirs before the trust creator’s death? Or is the trust to be for the sole benefit of the trust creator and perhaps spouse? The trust needs to be crystal clear on this point.

If individuals will serve as trustees instead of corporate trustees, when should they be removed for incapacity? What standard should be used? Should the opinion of a physician be required? 

Consideration should be given to authorizing someone other than the trust creator to amend the trust after incapacity sets in. This might be the trustee, a trust protector or the attorney-in-fact. If more than one person is granted the power, there should be a hierarchy of priority and a process for resolving conflicts.

Health care at the end of life

Typically, we expect heroic medical procedures for those who have a long and productive life ahead of them. The specter of incapacity may change this calculus. How aggressive does the individual want treatments to be? Are there treatments that should be avoided? 

Does the individual want a durable power of attorney for health care decisions? Who should be the power holder? The power will need to comply with the Health Insurance Portability and Accountability Act of 1996 (HIPAA).

An advance medical directive is also advisable for setting expectations for medical treatment. What artificial means of extending life should be used? What should be avoided? These issues need to be discussed with family members to minimize future misunderstandings and conflicts.

Long-term care

A diagnosis of impending incapacity makes the need for long-term care planning urgent. Step one is to determine how long someone may be able to stay in the home. Does the design of the house present obstacles to remaining there? Can they be overcome?

Who will provide the long-term care? Most care is provided without charge by family members, such as a spouse or adult children; however, as dementia sets in, professional help may be required. 

Will the person’s income be sufficient to cover the costs of a nursing home? Is long-term care insurance part of this picture? The analysis can be daunting. If the income will not be sufficient, a plan may be needed for the orderly liquidation of assets to cover those costs.

Substituted decision-making

Who will make decisions when the individual loses the capacity to do so? For asset management, the trustee of a living trust may handle those duties. For legal, medical and personal issues, the durable power of attorney will be used. In general, a family member will be given this responsibility.

Should the power of attorney include the power to make gifts? If so, how broad should the power to make gifts be? Should the class of recipients be limited or unlimited? Should the amount of the gifts be limited to the annual federal gift tax exclusion ($15,000 this year)?

The attorney-in-fact will not automatically be able to handle tax matters. The IRS requires the filing of Form 2848 for this purpose. Similarly, the Social Security Administration requires a person to be appointed representative payee to be able to affect a third-party’s benefits. The law has recently been changed in this area. The Strengthening Protections for Social Security Beneficiaries Act of 2018 included a provision for designating representative payees, and the commissioner of social security was directed to come up with a procedure for implementation. The change in law becomes effective April 13, 2020, and the procedure is due six months before that date.

(November 2019)

©2019 M.A. Co. All rights reserved.