Is your estate plan truly complete? Before you answer, you might want to take a look at this insightful article from Kiplinger that talks about elements of what the author considers a complete estate plan.
The article was written last year by California attorney John Goralka, and we think it makes some solid, if somewhat basic, points about the things your estate plan should be designed to accomplish. Refreshingly, the article also includes something many articles of its ilk too often ignore.
Goralka emphasizes the critical importance of ensuring that your plan includes specific instructions concerning your wishes concerning long-term care, including the arrangements you’ve made to cover the cost. Your plan should help you age on your own terms.
He calls these instructions a “personal directions letter.” We agree that adding this kind of written communication to your estate plan is a powerful way of helping your loved ones make decisions on your behalf in the event of your incapacity, and it will make it more likely that your final wishes after death will be honored.
But we’d recommend an even more forceful and intentional approach if you expect to see your wishes honored. This is where close consultation with the right elder law attorney is essential, in our view. You want any document that outlines your long-term care wishes to be both clear and enforceable. We can assist you with this process.
All Estate Plans Should Accomplish Four Basic Goals
“There are many types of estate plans, both complex and simple, revocable and irrevocable,” Goralka begins. “However, all estate plans should accomplish four basic goals” – one while you’re living and the others after you’ve passed away.
“First, if you are sick and unable to act, your estate plan should empower the designated person to step in to help make decisions,” Goralka explains. Then, once you’ve died, your estate plan should distribute your assets to the right people, handle the distribution at the right times, and ensure that the wrong people can’t tamper with your wishes for their own gain.
Giving Someone the Power and the Insight to Act on Your Behalf
This first function of a good estate plan is sometimes overlooked. One thing we like about Goralka’s article is that he not only stresses the importance of empowering someone to act on your behalf, but also adds the necessity of making sure they know just what it is that you want them to do, and how you want to be treated.
“If you are sick, your estate plan must empower your designated person to act on your behalf for financial matters,” he writes. “This person may act as the successor trustee or as the attorney-in-fact under a power of attorney. Most estate plans will require a letter from your doctor, or perhaps two doctors, confirming that they have examined you and that you are not able to handle your affairs.”
However, finances are one thing, while healthcare is another. Goralka explains that the medical community, whose members are “always concerned about potential liability,” is above all going to be cautious about allowing someone to make medical decisions on behalf of another person. Your plan needs to empower your designated agent to do just that.
Federal and State Privacy Rules Make Careful Planning Essential
The federal law known as HIPAA governs the privacy of medical information. HIPAA, a 1996 law, stands for the Health Insurance Portability and Accountability Act, and establishes rigorous federal rules about the sharing of personal medical data.
Many states have also enacted their own privacy laws. “Federal and state law may prohibit your doctor from releasing medical information about you,” Goralka writes, “including confirming that you lack the capacity to handle your affairs without an existing authorization to do so.”
That’s why, besides a financial power of attorney, your estate plan should include a healthcare POA with a written HIPAA authorization to ensure that the person you designate can make decisions for you without the expense and delay of going to court.
Advance Health Care Directive Plus a Personal Directions Letter
Most estate plans include a document called an advance health care directive. While this is important, it’s also severely limited, says Goralka. “An advance health care directive form typically provides very little guidance other than whether you would like your life artificially prolonged by extreme measures,” he writes.
For that reason, Goralka suggests, “Consider also utilizing a personal directions letter with more specific guidance and discussion of your wishes.” We think this is an excellent idea. (In this Blog article, we refer to this as a Statement of Care Preferences.)
Elements Your Personal Directions Letter Might Contain
Goralka cites some specific questions that such a letter might help answer. “For example,” Goralka asks, “do you wish to be at home? Do you want to know all the specifics regarding your medical condition? What should your condition be before treatment is stopped? Is the ability to communicate with your loved one important?”
The personal directions letter is a huge help to your health care agent, eliminating the stress of trying to figure out what you would say if they could ask you. At the same time, as Goralka points out, “Having specific written information detailing your wishes can ensure that your wishes will be followed” with less interference from family members and physicians.
Making Sure Your Assets Go to the Right People
Most people would probably agree that this is the most basic function of an estate plan. “When you die,” says Goralka, “your assets should go to your desired beneficiaries or family members.”
For that reason, “You need to detail your desired beneficiaries in a legally enforceable manner in your trust [or will]. If you do not do so, then your actual heirs may be established under the probate code of your state of residence, which may not reflect your wishes.”
Generations ago, when so-called “nuclear families” were the norm, rules of inheritance were usually simpler. Things are different today. “Today’s modern families include unmarried partners, domestic partners, adopted children, children from prior relationships, children going through a divorce and other relationships,” the article observes.
“Your trust or estate plan should ensure that your assets and legacy go to the right people that you designate.”
Making Sure Your Assets are Distributed at the Right Times
“Your estate plan should not only get your assets to the right people, but they should receive those assets at the right times,” says Goralka. He lists several types of beneficiaries for whom the timing of a bequest can be critical.
If your heirs are too young and not yet financially mature, you may wish to restrict control over investments and spending until they reach a certain age. This can be accomplished in several ways, including particular types of trusts.
For beneficiaries who are elderly, ill, disabled, or struggling with addiction, a lifetime trust may be necessary. While it seems odd to lump these categories together, we do see his point. Furthermore, those not good at handling money may need a spendthrift trust, which limits fund access to specified amounts and purposes.
Beneficiaries receiving government benefits should inherit through a special needs trust. This prevents the loss of means-tested benefits like Medicaid and VA support while still allowing them to enjoy their inheritance.
As Goralka adds, any of these conditions or circumstances might change after you pass away. For that reason, he says, “You may wish to give your successor trustee the power of flexibility to modify or adapt a beneficiary’s trust provision after your death.”
Keeping Out the “Wrong People,” Including the IRS
Goralka suggests your estate plan be tailored in such a way as to prevent your assets from going to the wrong people. By inference, he seems to include Uncle Sam in that list – at least to the degree that he recommends guarding against paying more in taxes than is necessary.
“If your assets are to go to your children or other named beneficiaries,” he writes, “then you want to be sure those assets are not lost if your child gets divorced, files for bankruptcy or faces lawsuits or other creditor claims.” This requires specialized work by a legal professional to make your plan as airtight as possible.
This same degree of planning can also minimize the tax bite from an inheritance. “We do not want your beneficiaries to incur loss due to court costs and probate fees,” Goralka states. “We want to minimize income tax owed by your beneficiaries on future income to the estate if possible. We want to avoid estate tax, and we do not want your beneficiaries to pay estate tax.”
This also requires careful preparation, particularly for larger, more complex estates. The bottom line, Goralka concludes, is clear. “You worked a lifetime to create a legacy for your loved ones,” he says, “and careful planning is needed to ensure that your legacy goes to the right people at the right times and keeps the wrong people out.”
Without a Plan and a Shared Perspective, Your Family is Left in the Dark
We’re closing by returning to the topic of care preferences – a subject so critical that we wanted Rajiv to have the last word. Sadly, he explains, at the moment when a health emergency strikes, your family and your physician are probably thinking of just one thing: your safety.
But as Rajiv often notes, this focus on safety shows how much their perspective differs from yours.
“It’s natural,” he says, “that, when there’s a health care crisis, your kids are going to be preoccupied with keeping you safe – never mind that their so-called solution is going to make you miserable. The perspective of your kids and your doctor will be, ‘We have to keep mom or dad safe,’ and that means you’re likely heading for a care facility, which is the one place you always said you never wanted to end up.”
Rajiv adds, “So, the good news is you’ll be 100 percent safe. The bad news: you’ll be 500 percent miserable. There has to be a better way to make sure that, at the end of the day, your perspective is the one that wins out. If you value your independence and the freedom to age at home, it’s up to you to make a plan that makes that outcome the most likely.”
Rajiv Nagaich – Your Retirement Planning Coach and Guide
Rajiv Nagaich’s newest program on PBS, called Designing Your Ideal Future, is bringing Rajiv’s powerful message to Americans from coast to coast. This engaging and challenging PBS show is prompting thousands to take a fresh look at the type of planning that will help them succeed in retirement.
In this one-hour PBS special, Rajiv Nagaich takes viewers step-by-step through the principles of creating a retirement plan that truly supports the life you want to live. Instead of generic check-the-box paperwork, Rajiv reveals how to infuse your perspective — your values, goals, and priorities — into every legal document and life plan component so your plan becomes a living system for your future.
Designing Your Ideal Future includes insights from real-world planning examples and a live Q&A with Rajiv Nagaich that answers viewer questions about retirement planning, legal readiness, and family communication. It’s perfect for anyone approaching retirement, currently retired, or responsible for a loved one’s future care — and for those who want a clear, effective approach to planning that prioritizes personal choice and quality of life.
What about you?
You’ve heard Rajiv say it repeatedly: 70 percent of retirement plans will fail. If you know someone whose retirement turned into a nightmare when they were forced into a nursing home, went broke paying for care, or became a burden to their families – and you want to make sure it doesn’t happen to you – then these materials are your key to retirement success.
Visit your local PBS station’s schedule to find airtimes and learn how to access companion resources — including a free Legal Readiness Quiz and tools to help build your complete LifePlanning system.
Don’t remain among the millions of Americans sleepwalking their way into a retirement they never wanted. Instead, your retirement can be the exciting and fulfilling life you’ve always hoped it would be. Start by watching, reading and sharing Rajiv’s important message.
And remember, Age On, everyone!
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