ESTATE PLANNING Create a Plan That Spans Life's Seasons
Your father set up an estate plan years ago. Now he is in his late 80s and facing the challenges that a long life brings. Or perhaps your widowed mother still lives independently in her home but is becoming frail. Whatever the particulars in your family, it's increasingly common for people to live into their 80s, 90s and beyond.
Your parent's needs have most likely changed over the years, and that means the focus of his or her financial, health and estate plans should change, too. It's not easy to approach an elderly parent who hasn't broached the subject of disability or death with you, but it's crucial. If there are obstacles to this approach, consider involving a neutral person your parent respects.
One tack that often works is to ease into planning by discussing with your parent who should step in for him or her during a short-term medical emergency. From there, move on to address longer-term disability and other future health-related issues.
A plan to live with
In your discussion, emphasize that putting a plan in place is the best way for your parent to retain independence and choice. The plan should address all basic issues, including the following:
Who will make health care decisions? If your parent cannot make decisions, who will speak to the doctors and nurses? With an advance medical directive (also known as a health care proxy), your parent designates a health care agent (you or another person) to undertake those tasks. The document form must be legal in the state where your parent lives. It's also important that the designated person fully understand your parent's wishes concerning various levels of medical assistance and intervention. A backup should be named in case the first person isn't available when needed.
Depending on your parent's feelings and health, consider a living will, which sets out his or her wishes for care in the event of a terminal illness or irreversible coma. If the issues are too painful, be assured that with an advance medical directive in hand, your family can make those decisions on behalf of a parent. If your parent strongly wishes to decline resuscitation by medical professionals, he or she may want to sign a do-not-resuscitate order (See KRR, February 2002).
Who will handle financial and business affairs? Your parent should select one or more individuals to manage such chores as writing checks and paying bills. With a durable power of attorney, the authority to handle the checking account and make investment decisions can be delegated to one person or split among several dependable family members. Whatever duties are designated, it's important to include some method of holding each agent accountable to the parent and family. For example, the power of attorney can specifically require the agent to provide a regular statement of bills paid and an explanation of checks written. The agent charged with making investments can be required to hire an independent accountant to review the portfolio.
An alternative is for the parent to set up a living trust and transfer all property to that trust. If at some point the parent can no longer manage, the person named as co-trustee can assume the responsibilities.
Who will provide care and what will it cost? This question weighs heavily on many older people and their families. While you and your parent are reviewing the financial plan, find out about the cost of home care, assisted living and nursing homes in your parent's (or your) neighborhood. This information will help you realistically assess how long your parent could live at home with help and how long his or her savings would last, both at home or in a senior facility.
One way to pay for long-term care, which is generally not covered by Medicare, is with insurance. Age is a factor. Unfortunately, by the time your parent is 80, long-term-care insurance generally ceases to be a practical option, either because he or she is too old or has disqualifying health problems, or because the age-based premiums have risen out of sight. But the feasibility of insurance for your parent is something you should check, says Andrew Hook, an elder law lawyer in Portsmouth, Va. His 78-year-old father, who works for the Navy, recently purchased the long-term-care policy offered to federal employees by the federal government. The policy has no age limit. For more on the government's long-term-care insurance program, check the Office of Personnel Management site.
A plan for the estate
Part of the plan should concentrate on transferring assets to heirs in the most efficient way at the lowest cost. Despite the ballyhooed changes in the estate-tax exemption, most people don't pay estate taxes and, as the law now stands, few will. In 2003, each person can pass up to $1 million to heirs free of estate and gift taxes. In addition, a married person can leave an unlimited amount to a spouse with no estate-tax liability. The $1-million exemption gradually increases to $3.5 million in 2009 and is unlimited in 2010.
A good place to start a review of the estate, says James John Jurinski, an estate lawyer and CPA in Portland, Ore., is by scrutinizing what's currently in the plan. If a spouse has died or the plan was designed to address problems that no longer exist, it's a good idea to simplify it. Administering an unnecessarily complex plan is a waste of money.
If the review shows that your parent's estate would trigger the estate tax if he or she died within the next few years, seek legal advice. But the most important consideration is that any gifting plan or other strategies to save on estate taxes not deprive your loved one of the assets he or she might need for long-term care and other living expenses.
If you need advice from someone who specializes in addressing the concerns and problems of the elderly, visit the Web site of the National Academy of Elder Law Attorneys, or call 520-881-4005. As always, before you or your parent hires a lawyer, verify credentials, ask for references and confirm that the lawyer has a sterling reputation.
GETTING STARTED
