Posted by: Katie May

People of all ages need to have an estate plan, but that is especially true as we enter the twilight of our lives. Estate planning issues confronting seniors differ in many respects from those faced by young families or those in their prime earning years. A few of the most important issues that should be discussed and addressed include:

Leaving a Legacy
As members of society we work during our lives to shape our legacy, whether that is to provide for our family or to leave a lasting impact on the greater community. By creating an estate plan, we ensure that our legacy continues beyond our lives; therefore, thoughtful consideration should be put into the estate plan that defines the legacy you leave. In a prior blog post (Family Legacy more Important than Personal Wealth, September 29, 2012), we reported that an Allianz study had found that baby boomers and their parents are more concerned about family legacies than about receiving inherited wealth. We encourage our clients to share and transfer not only their tangible property, but also their goals, their values, the things they stand for. These issues become more important the older we get.

Long-Term Care
A recent Genworth Financial study reported that, according to research conducted; approximately 70% of people over the age of 65 will need long term care services at some time during their lives. The same study reported that the median 2012 cost for care in an Illinois skilled nursing facility is approximately $70,000 a year. For many, the price tag associated with long term care is startling.

At the same time, the chance of developing dementia increases as we age. The Alzheimer’s Association reports that 1 in 50 people ages 65 to 70 have some form of dementia as compared to 1 in 5 over age of 80! Most people have encountered some form of dementia within their own families and understand the emotional and physical toll it can take on the primary caregiver.

Planning for the “Golden Years”
If left unaddressed, a family is forced to take the traditional steps to deal with incapacity. These steps include a filing for guardianship and asking the court to appoint a guardian to help with the personal or financial management, or both, of the individual who is deemed to be incapacitated. This process is expensive and time-consuming and can be very frustrating to a family trying to do the best thing for their loved one. The court, being unfamiliar with the incapacitated individual, may not truly understand how the incapacitated individual would make decisions, leaving the family frustrated. An attorney, and possibly an accountant, must be employed, and reports which will detail the financial business of the incompetent person must be submitted to the court. Annual accountings to the court are required to be made by the guardian, and the guardian is usually required to post a bond. In most cases, the financial status of the protected person becomes a public record, available to anyone who goes to the courthouse and inquires.

Seniors who have not purchased long term care insurance and are not self-insured to cover the staggering costs involved are forced to apply for Medicaid assistance. Illinois’ rules and regulations regarding the Medicaid program have twice seen drastic changes in Illinois just this year. Medicaid is a very complex program with strict qualification requirements, and application for benefits under that program may require an estate planning professional with experience and expertise in this area of law.

An effective estate plan addresses the above issues and includes the following:

Will or Trust Planning:
Will: The traditional method of passing property in an estate is through the probate court. An individual may wish to provide a set of instructions for how property owned at their death will be distributed and appoint an individual to serve as the Executor of the Estate in a Will. The executor is charged with the duty of notifying heirs of estate proceedings, taking an inventory of the estate, giving notice to creditors, paying claims against the decedent, filing tax returns as needed, managing the properties of the estate within the limitations established by the decedent’s will and the probate laws, and eventually distributing the estate. This document is only effective upon death; therefore, it does not provide any benefits during incapacity.

Revocable Living Trust: Trusts have been used for many years as a means of avoiding probate and providing for management of the estate in the event of incapacity. The grantor may name himself or herself as initial Trustee, and a successor Trustee to serve at their death or incapacity. The Grantor, or creator, of the trust specifies the terms under which the Trustee manages and distributes the property held in trust. All of the property transferred to the Trust is generally held for the benefit of the Grantor during his or her lifetime, and may be held thereafter for the benefit of the surviving spouse. Subsequently, trust assets are then either distributed or held for the benefit of children or others, all according to the directions contained in the trust agreement.

There are numerous estate planning objectives that may be accomplished only by placing assets in trust. These non-tax advantages include:

  • Management of assets in the event of the incapacity of the Grantor.
  • Reduction of probate and other estate administration costs.
  • Placing management of property in the hands of a Trustee.
  • Providing flexibility of income and principal distributions over a future period.
  • Freeing property from the claims of the beneficiary’s creditor’s (“Spendthrift Trusts”).
  • Protection of beneficiary from the beneficiary’s own imprudence or incapacity.

Power of Attorney for Property: A Durable Power of Attorney for Property allows you to appoint a person to handle your financial matters, and is a written authorization for an agent to perform acts for you in the nature of financial or property transactions. A Durable Power of Attorney for Property gives the agent the power to act for the principal in any way the principal could act for him or herself. The Power of Attorney may be drafted to be effective immediately, or only at some specified future time, such as when the principal can no longer manage his or her own financial affairs.

This document saves family from having to pursue a Guardianship in order to manage finances. Illinois provides a statutory template for the Power of Attorney, but that template should be enhanced and customized to meet the individual’s needs. While this document is an integral part of an estate plan, it must be entered into with thought. Very careful consideration must be given to who will serve as your trusted agent.

Power of Attorney for Health Care: A Durable Power of Attorney for Health Care gives you the ability to name an agent who will make decisions if you are unable to make those decisions yourself. It also provides the principal a voice in how certain health care decisions should be made by the agent, including organ donation and life prolonging procedures. It is important that seniors make their health care wishes known while they are able to do so. The statutory form provided by the State of Illinois provides a basic template; however, it should be enhanced to meet the specific needs of each individual.

The appointment of a health care decision maker, by itself, is not enough. You must inform the named agent of your health care wishes. When the time comes for an agent to act, the agent needs to know how you would want decisions made. By executing a Durable Power of Attorney for Health Care, a senior saves family members the time, expense and emotional turmoil of a Guardianship proceeding, in which a Court appoints a decision maker.

Living Will: A Living Will applies only if an individual has an incurable and irreversible injury, disease or illness which is judged to be a terminal condition by the treating physician. It directs doctors and health care providers not to use artificial, life-preserving procedures to prolong the dying process.

This document applies only under the very narrow set of circumstances, unlike a Durable Power of Attorney for Health Care, which has much broader applicability. Under Illinois law, your doctor should seek the input of an agent acting under a Durable Power of Attorney for Health Care before acting under this Living Will Declaration. The Living Will, therefore, is subordinate to a Durable Power of Attorney for Health Care in situations where both documents are present and applicable; however, it provides evidence of your health care wishes for the agent acting under a Durable Power of Attorney for Health Care.

HIPPA Authorization: The Health Insurance Portability and Accountability Act (HIPAA) was enacted, in part, to protect the privacy of an individual’s medical and health care information from unauthorized disclosure. Executing a HIPAA Authorization assures that the individuals you name, the “HIPAA agents,” have access to all medical information about you, and that doctors and other medical personnel will cooperate with the HIPAA agents and share all relevant medical information. Without such an authorization, it is difficult, even for a spouse or child, to get information about your medical and health care situation.

Once your estate plan is in place, it is important to review it on a regular basis to ensure that it meets your objectives as your assets, family dynamics and life situations change. In addition, on both a state and federal level, laws constantly change, and estate and income tax rules affecting your estate are in a constant state of flux. If paying for the cost of long term care or providing for the management of assets in the event of incapacity is of concern, it is especially important for seniors to consult with an attorney versed in the complex Medicaid rules and regulations and the regulations governing Veterans Pension benefits. The team at Huck Bouma is competent is this area and is committed to assisting you through all stages of your life, including during incapacity. Call our office today to schedule an appointment at (630)682-0700.