Oast & Hook, P.C. © Copyright 2011
| Planning for the Inevitable or Probable |
| Publications - Publications: Estate Planning | |||
Planning for the Inevitable or ProbableAll of us will die and there is a significant likelihood many of us will suffer a period of disability. For example, the likelihood of a 65 year old developing a disability in at least two primary activities of daily living or becoming cognitively impaired is 44% for males and 72% for females. A 56 year old person has a 27% chance of suffering a period of disability of at least 90 days before reaching age 65; a 25 year old has a 44% chance of experiencing the same disability. Failing to plan for death or disability will impose unnecessary cost and hardship upon your family and you; not to mention the emotional stress that follows any lack of planning. Oast & Hook recommends the following steps to minimize the expense and hardship incurred if you suffer a disability or upon your death: Prepare and Annually Review Your Estate and Disability Plan. Everyone should consult with an attorney concerning the preparation and update of an Estate and Disability Plan, including one or more of the following documents which provide for the management of your assets and personal affairs during a period of disability and the disposition of your assists at your death:
Pay particular attention to the person(s) you designate as your agent, executor or trustee ("fiduciaries") to insure that they are trustworthy, having the necessary expertise, and having the time to devote to the assigned task can greatly benefit your family and you in the event of a disability or death. Since the future is uncertain, it is important to designate successor fiduciaries. Consider whether there are any conflicts of interest between the designated fiduciary (ies) and you or your beneficiaries. Discuss with the designated fiduciary (ies) whether they are willing to serve and insure that they have access to the necessary documents when needed. To avoid misunderstandings, specify whether the fiduciary will be compensated and, if so, how the compensation will be calculated. Consider including provisions in your estate & disability plan to provide for oversight of the fiduciary's actions and protection against mismanagement. Provide your fiduciaries with written instructions concerning your preferences for health care, choice of physicians, in-home care verses facility care, etc. Keep the instructions updated as circumstances change. Parents should include provisions in their estate plan to protect their children including:
Business owners should also incorporate business succession planning into their disability and estate planning. The plan should consider:
Parents should consider using a trust to protect their children's inheritance from risks resulting from immaturity, inexperience with managing investments, divorce, and/or creditors. Any prior marriages that involve children, it’s imperative to pay particular attention to incorporate provisions in your plan protecting against conflicts of interest. Even if your second spouse is entirely compliant with your wishes, situations can rapidly change. For example, if Alzheimer's develops, the holder of a power of attorney could use assets in ways you do not wish for them to be used. Thus, second marriages present unique challenges. For unmarried and same sex couples, pay particular attention to the protection of your partner and/or you, as the default rules are not favorable. Incorporate Family Meetings into Your Planning. Even the best plans run a high probability of failure if they are not clearly communicated. Regularly discuss your finances and planning with your spouse. Only about one-third of wives are comfortable with managing the family's finances if their spouse were to become disabled or die. Teach your children how to manage their finances. Hold a family meeting with your children to introduce your advisors, by discussing who will serve as your agent or executor upon your disability or death and what your health care preferences are will make it clear for your family to understand. Incorporate Tax Planning into Your Disability and Estate Planning. Consult with your attorney and financial planner to incorporate tax planning into your disability and estate plan. Consider paying for your disability insurance premiums with after tax dollars so the benefits will be tax free. If available at your work, use a cafeteria plan to pay health insurance premiums with pretax dollars or consider a High Deductible Health Plan with MSA. If you itemize, deduct long-term care insurance premiums as a medical expense. Plan to avoid probate taxes using probate avoidance techniques such as revocable trusts, joint ownership, and designations of beneficiary. Reduce the impact of estate taxes using both spouses applicable exemptions, valuation discounts, Irrevocable Life Insurance Trusts and annual gift tax exemptions. Collect, Organize and Safeguard Your Important Records. In the event of your death or disability, your family will need access to the following records:
You should collect and organize these documents. Consider storing the originals in a safe deposit box or safe while maintaining copies of them in password protected electronic format for ease of access. Store Your Advance Medical Directive and Prescription Drug List on Line. When you need your advance directive or prescription drug list, it will frequently be a time of emergency when you or your family will not have access to the paper copies. Consider storing them on line with a secure website that is accessible 24/7. Prepare and Annually Review Your Financial and Investment Policy Statements. Annually you should evaluate the expected return for your investments, asset allocation and the appropriate level of investment risk that you are willing to assume. In the event of your death or disability your family, designated agent or executor will need access to an accurate list of your assets, liabilities, insurance and income. The agent, executor, and family will also need to understand your investment plan. With the assistance of a CERTIFIED FINANCIAL PLANNERTM (CFP®), prepare and update a personal financial statement and investment policy statement. Evaluate and Insure Against the Costs or Loss Resulting from a Disability or Death. Consult with a Certified Financial Planner to evaluate the loss or expense that you or your family would incur in the event of the death or disability of you or your spouse and consider insuring these risks with:
The costs and expenses resulting from a disability or death are varied and frequently large. Uninsured health care costs can be over whelming. A person disabled before age 65 incurs not only the cost of care during the period of disability but also a lost of income and fringe benefits. A person disabled after the age of 65 frequently incurs large long-term care expenses which are not covered by Medicare or Medicare supplements. At death, the deceased person's family frequently suffers a lost of income and the potential for probate or estate taxes. Create an Emergency Fund. Maintain cash in a savings account equal to six months of your living expenses as an emergency fund. Only 24% of Americans have a 6 month emergency savings cushion. To protect you and your family in the event of your disability or death, consider titling the account as a joint account with your spouse or other close family member who would assist you in the event of a disability. Consolidate Unnecessary Bank, Investment and Retirement Plan Accounts. In the event of your death or disability, your fiduciaries will assume the responsibility for management of your assets. The effort required by your fiduciaries is increased in proportion to the number of accounts and investments your hold. Additionally, the likelihood of an asset or account being lost or over looked increases with the number of accounts and investments. All unclaimed property is turned over to the state to be held until it is claimed. It is estimated that the states are currently holding about 15 billion dollars worth of unclaimed property. To minimize the management effort and reduce the likelihood of your family losing your property at your disability or death, it is wise to consolidate bank, retirement and investment accounts into as few as is necessary. Avoid a Disability, Maintain Independence and Postpone Death. Good health can help many people avoid a disability, maintain independence, and postpone death. Have an annual check up and follow your physician's advice. Get adequate rest, including 7 to 8 hours of quality sleep each night and take vacations. Practice good nutrition. Eat lean meats, vegetables, fruits and whole grains, incorporating one or more servings of fruit or vegetables (French fries do not count) into every meal. Avoid sugar, fast food, processed food, excessive use of alcohol, and problematic behavior such as smoking or riding your bike without a helmet. Regularly exercise (at least three or four times a week), including balance, cardiovascular and strength training. Consider joining a gym or hiring a personal trainer. Preplan Your Funeral. It will be very difficult for your family to make wise choices concurring your funeral or burial when they are grieving at the time of your death. Consider preplanning your funeral and burial and designating a family member to implement those instructions. Preplanning may or may not include prepayment of the funeral and burial expenses. Burial insurance is an option. Other options include writing a letter which will accompany your will. If you believe family members will dispute your wishes, have the gifts they receive under your will be contingent upon their compliance. Avoiding Gaps in Your Financial, Disability and Estate Planning. To avoid gaps in your planning, consider regular joint meetings with your attorney, financial planner and accountant. We recommend annual meetings. Comprehensive planning will provide you and your family with superior results. It is always best to have a counselor instead of a salesman. Avoiding Gaps in Your Parent's Financial, Disability and Estate Planning. To assist you in providing assistance to your parent, consider holding a family meeting to discuss their wishes and recommend that they meet with their attorney and financial planner to insure that the appropriate planning is in place to implement those wishes. Ask your parents where they store their important legal documents and records. Avoiding Gaps in Your Children's Financial, Disability and Estate Planning. You should begin educating your children about money management and investments at an early age. When your children turn age 18, they are legally adults. You should recommend that they implement disability and estate planning including powers of attorney, advance medical directives, a will, and appropriate designations of beneficiary. Recommendation. Oast & Hook recommends that you implement, with the assistance of your attorney and financial planner, a comprehensive disability and estate plan, keeping it current with regular reviews and necessary updates.
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