Doug Chalgian, Certified Elder Law Attorney © 2015
Clients often believe estate planning is about planning for what happens to their assets when they die. And while that’s true, it is less true today than in the past. As a result of changes in society and changes in the laws, estate planning today is (or should be) more about planning for aging than death.
We are living longer. As I often tell clients “plan to be 100.” If you are in your 60’s or 70’s, the odds are very high that you will survive another 30+ years. Many clients don’t think that way – or don’t want to think that way. But that’s the new reality. The legal issues that may arise during these advanced years are numerous, and can lead to problems if planning is not in place.
Most significant is the fact that, as we age, the likelihood that we could become cognitively impaired increases dramatically. Age-related dementias, including Alzheimer’s disease, are epidemic. Having an estate plan in place that anticipates the possibility that during some portion of your life you may be unable to make decisions for yourself is what modern estate planning is all about.
Planning for cognitive decline involves at least two documents: a medical power of attorney (or patient advocate designation) and a financial durable power of attorney. A trust agreement can also play an important role in managing assets during periods of incapacity. These documents allow you to appoint people you trust to make decisions about your healthcare and your finances if you become unable to make those decisions for yourself. Without these documents, it may be necessary to go to court to have a guardian and/or conservator appointed to make decisions. Avoiding a court proceeding, and the potential for disagreement among family members about who should be in charge and what decisions they should make, is a big benefit to having documents in place.
Planning for Long Term Care
But just having power of attorneys in place is not enough. It is also important that your documents address what your wishes would be in the event you are unable to make decisions and need care. When older people become impaired, they often need a high level of care, which care can be expensive. Decisions may need to be made about whether you receive care in your home, in an assisted living facility or nursing home. Questions may also arise about whether it is better to take steps to “protect” your assets and qualify for government assistance programs, or spend the money you have saved on your care. These decisions impact the quality of care you will likely receive. Unless your estate planning documents provide direction as to how to strike the balance between protecting assets and paying for higher quality of care, decisions will be made by family members who may have their own ideas, and their own interest, in your estate.
With living longer comes the prospect of outliving one’s savings. Accordingly, less importance is placed on what passes to future generations when we die, and more emphasis is placed on preserving resources while we are alive, to make sure we have sufficient funds to provide for our own care.
Grandparents and great-grandparents can often be looked upon as resources to help younger family members with their finances. It is easy and natural for financially secure elders to want to help out when younger family members face financial challenges, need money for college, or help with their bills. But good estate planning should protect elders from their own generosity. Plans should provide that clients have adequate resources to provide for their quality of life, no matter how long they live, and to assure that their estates are not dissipated on the expenses of following generations.
For people in advanced years, planning to leave their assets to the next generation may mean that when they die the people who would inherit are themselves of advanced years. If you die at age 95, your children may be in their 70’s. This means for some people, an estate plan should skip a generation (or two) and provide for the grandchildren or great-grandchildren. Such planning might include educational trusts, or trusts that provide support for younger generations who want to buy homes or start businesses.
Frail elders, even those without cognitive impairments, are often targets of financial exploitation. Exploitation may come from financially insecure family members or from professionals who prey on vulnerable adults. Good estate planning documents will establish protections so that your assets are managed and monitored by trusted family members or professional fiduciaries to reduce the risk of being exploited.
Changes in Tax Law
The reduced emphasis on planning for passing assets at death is a function, in part, of changes in our tax laws. Over the past several years, inheritance tax laws have changed dramatically, so that today only the largest estates are subject to taxation. The Federal Estate Tax now applies only to estates in excess of $5,430,000; and that number increases each year. For couples, that means the Estate Tax kicks in only for estates of about $11 million or more.
In the past, estate plans were often primarily designed to avoid the Estate Tax, which, as indicated, no longer applies to most people. This reduction in the importance of estate tax planning allows estate planners greater flexibility as to how documents are drafted. While there are still important tax considerations, including for income taxes associated with retirement accounts, and for capital gains and real estate taxes, tax planning is significantly less important to estate planning today than in years past.
Estate planning has changed, and will continue to change with the laws and the evolution of society. The dramatic increase in life expectancies, along with changes in tax laws, have refocused estate planning away from passing assets at death to protecting adults as they age, and making sure that they have sufficient resources to provide for their quality of care. Meeting with an attorney who understands modern estate planning, and can assist in creating documents that provide a road map for care and asset preservation, while anticipating the potential of living to an advanced age, should provide greater security and quality of life.