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BUSINESS & ESTATE PLANNING

Real World, or Dream World?

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Making a realistic plan for your future is the best thing you can do right now, says Jon Graft. Here he explains the steps you can take to make things work out the way you want:

As we live longer and our families become more fragmented, planning for our own
care has become critically important. Many of us have been in the position of caring for a relative or friend who can’t handle his or her financial affairs anymore. Planning for this sort of situation is often overlooked – and no wonder, when it can seem such a frightening, far-off prospect. Do it properly, however, and you can be well cared for in the way that you want, by the people you have chosen, for the rest of your life. So what are your options? There are four basic choices open to you:

1. Counseling-oriented Trusts


 The ideal situation is one that you have planned yourself along with family or trusted friends. Trusts prepared with a counseling-oriented approach (such as the
National Network of Estate Planning Attorneys’ three-step strategy), provide a personalized definition of disability, using a disability panel. When your loved ones start to think it’s time for you to turn control over to somebody else, they can call the panel together to decide whether you are disabled. The panel operates by your rules. Who’s on it? You decide. It will usually include a mix of medical professionals, family members, or trusted friends: people who you’ll trust when they say, “I love you, but it’s time to let someone else take care of your affairs.” Do they have to be unanimous, or will a majority do? Again, you decide.

You’ll need to choose a “Successor Trustee” who will be the one to take care of you later, following instructions you’ve left. I often ask my clients: “When you need someone to care for you, would you rather be cared for in your own home, in somebody else’s home, or in a nursing home?” Everybody has their own opinion, but most estate plans don’t answer that question. Many of my clients have opinions on things like whether they want visitors, or if they want music in their room. I have clients who want to make sure somebody does their hair. That isn’t trivial; it is part of you. When your family knows your wishes, they are more likely to be granted.

Finally, if you have tax-deferred retirement plans, such as IRAs and 401(k)s,
they need to be addressed separately since they cannot be owned by trusts. Within
your trust you will need to use a Limited Durable Power of Attorney (LDPOA) to
appoint someone to control those accounts. This is like a General Durable Power of Attorney (GDPOA) but with limited powers (see below). Because institutions don’t have to accept these, it’s a good idea to either get advance approval of your
LDPOA, or use the institution’s own Power of Attorney form.

2. Standard Trusts


Standard Living Trusts are often little more than word-processing. They will often use a standard definition of disability (usually based on the opinion of any two doctors – but without any guidance from you on which doctors to use). There is no attempt to prepare a personalized plan and they typically have few personal instructions, but they do at least provide for a private transfer of control to personally selected trustees.

3. Power of Attorney


People often use a GDPOA to prevent guardianship proceedings (see below). A Power of Attorney appoints someone as
your “Attorney in Fact,” or agent. “General” means the powers granted are very broad; “Durable” means it remains in effect after you are mentally disabled. GDPOAs are usually effective immediately and have no reporting requirements or personal instructions, but extremely broad powers. Although you will get to name the person who is in control, you will otherwise have little or no control over your affairs. Another common problem with Powers of Attorney is that nobody has to accept them: if your bank won’t take your Power of Attorney when it is needed, you will need to go back to a guardianship proceeding.

4. Guardianship proceeding

This is how things can work if you haven’t planned at all. In most states, your loved ones must hire an attorney, go to court, and get the judge to declare you mentally incompetent. The judge may appoint a second attorney to make sure you have a fair trial. After taking evidence in a public hearing, the judge decides if you are disabled; who will be your guardian; and what that guardian can do. Every state’s system varies, but they have one thing in common: the judge, not you, is in control.

 

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