Common Sense Thoughts

Stories of family and friends suddenly needing health care and financial decisions to be made for them, because they temporarily or permanently become incapable of acting for themselves, should make us all take certain steps to protect ourselves and our families. Those certain steps are Power of Attorney to handle financial affairs, a healthcare directive, and a trust or will or both depending on the circumstances. With the right tools in place, your family members or other trusted person can handle your health and financial matters to protect your assets, manage your health care if you cannot and give your whole family peace of mind that any expected or unexpected problem can be handled.

A common example is an aging couple with one spouse needing care. If that spouse has a durable power of attorney in place, the healthy spouse or an adult child can handle the assets, including home care, banks, stocks and any type of asset. The federal and state laws allow assets to be transferred to the healthy spouse at the last minute and protect those assets. The federal law allowing this is to prevent the impoverishment of the healthy spouse. But if the power of attorney lacks critical provisions such as specific powers to get a court order to transfer a 401K or a 403b to the healthy spouse, called a qualified domestic relations order (QDRO), the 401K or 403b would have to be cashed in, the income tax paid on the full amount, and then further steps taken to protect the money that was left. The income tax above could dissipate a huge portion of the retirement money.

A key decision is who to name as a power of attorney. The spouse is a logical choice, if that spouse is capable. But for a single or widowed person that will probably be a child. That child should be able to handle finances, treat siblings fairly in accordance with your intentions and use those assets to keep the parent in the best living situation possible. The same goes for a backup to the person first named. The decision for a health care decision maker turns more on who could best handle end of life decisions. Those are not easy and some children could never bring themselves to terminate life support, even if there was no hope, and the parent had specifically said they wanted life support terminated if there was no hope of returning to any kind of conscious life. A simple HIPAA form allowing chosen people to speak with your doctors is also wise.

Another common sense thought, which we often don’t think about, is to tell our children where we keep those critical documents, or to give them an extra original so they know exactly where they can get it if needed. Beyond the basic critical documents, depending on age, health, and amount of assets, there are certain types of trusts that can protect assets if one or both spouses became sick and need long term care. There is no one size fits all, so competent and thorough advice is needed before planning with trusts. For example, a revocable trust does not protect assets if Medicaid is needed. But it can be a valuable tool for estate planning to “avoid probate.” In Connecticut you can avoid probate, but the law does not allow the beneficiaries of a deceased person to avoid the “probate fee,” because that fee is not based on property going through probate. It is based on the transfer from a deceased person’s name to the beneficiary’s name. So if one spouse died jointly owning a house with the surviving spouse, a Connecticut succession tax return must be filed and a probate fee paid to get a tax clearance letter showing no tax is due. And without that letter, the surviving spouse or the children will not be able to sell the house, either then or years later. And all the while, interest is running on the unpaid fee.

The overall common sense approach to planning for your future is to get an overview of your situation and take the specific steps and prepare the proper documents that your family needs. And then as years go by and health and financial situations change, get a review to see if any changes should be made.