Estate Planning for Old Age and Incapacity

Vol. 32 No. 6

By

Sheila-Marie Finkelstein, Esq. (smfinkelstein@hbplaw.com), practices estate planning with Holstrom, Block & Parke, APLC, in Irvine, California. She is working toward her LLM in taxation with emphasis on advance estate planning at Chapman University Dale E. Fowler School of Law.

Countless people avoid estate planning, many because they do not want to deal with aging or dying. Estate planning is not just about making final arrangements after death; it is about planning for life. Many estate planning attorneys assert the most important reason for estate planning is to prepare for old age and incapacity. Estate planning is the legal way to make your wishes known and enforceable when you are no longer able to do so yourself. A comprehensive estate plan will include a financial power of attorney as well as health care directives, the stand-alone documents that deal specifically with old age and incapacity. These documents are also the most effective way to avoid conservatorship. Conservatorship is judicial appointment and supervision of a guardian (someone with legal authority and duty to care for another’s person or property because of the other’s incapacity or disability).

Failure to plan for old age and incapacity is a disservice to your loved ones and yourself. If you become incapacitated without having made your wishes known, your family will be in the difficult position of trying to determine and agree on what you would have wanted. Without consensus from your family, your physicians will not know which treatment plans to follow, and you may be subject to medical treatment that may not align with your wishes. History has shown that this can lead to great discord and resentment, irreparable family rifts, and severe negative financial impact.

Financial Power of Attorney

A power of attorney is a written instrument that grants someone the authority to act as an agent or attorney-in-fact for the grantor. Essentially, a power of attorney allows the agent to act in the place of the principal, the person granting the power. This agent is known as the attorney-in-fact. Ordinarily, a power of attorney is revocable and automatically terminates upon the death or incapacity of the principal. A financial power of attorney is a general power of attorney that authorizes an agent to transact business for the principal; the agent will have legal authority to act on the principal’s behalf financially. The agent can use the principal’s assets to collect government benefits, pay bills, handle banking, and conduct other financial transactions. The agent’s authority is limited only by the scope of the power of attorney. A special power of attorney limits the agent’s authority to a specified matter, such as paying bills, but not other matters, such as purchasing property.

Unless language is included to make the power durable, it will automatically terminate upon incapacity of the principal. A durable power of attorney remains in effect during the grantor’s incapacity, whereas a springing power of attorney only becomes effective at a designated future date or occurrence, usually upon the principal’s incapacity.

Important considerations for appointing an attorney-in-fact. There are many important considerations when appointing an attorney-in-fact. The agent should be someone you trust absolutely, as he or she will have almost complete access to your financial affairs. You should have frank discussions about the burdens and responsibility required to hold power of attorney.

The agent should be capable of handling all financial affairs as well as having sufficient time and energy to maintain the responsibility in the long term. One should designate a successor agent in case the primary agent is unwilling or unable to act on the principal’s behalf.

The principal must have current capacity to execute the power of attorney; otherwise the document will be null and void. Some erroneously believe they do not need to designate a separate power of attorney because they have executed a trust in which they appointed a trustee over financial assets within the trust. However, it is important also to designate an attorney-in-fact, as the trustee only has power over the assets already within the trust and does not have authority over assets not yet placed in the trust.

Be aware of potential elder abuse. One of the most common forms of elder abuse is perpetuated by an attorney-in-fact. In the wrong hands, a power of attorney can be a license to steal as the agent is not subject to court oversight. It is important to review the power of attorney regularly as family dynamics and circumstances may change. If you change your attorney-in-fact, it is wise to notify banks and financial institutions that may have relied on a previous version of your power of attorney.

Health Care Directives

Although there are distinctions among them, the terms “health care directive,” “health care power of attorney,” “living will,” and “advance health care directive” are often used interchangeably. The appropriate document varies by state. A durable power of attorney commonly allows an agent to make health care decisions for a patient who lacks capacity. Types of health care directives range from the least comprehensive “do-not-resuscitate order” (DNR) to “physicians orders for life-sustaining treatment” (POLST) to the more all-encompassing “living will/power of attorney for health care/advance health care directive.”

If there is a medical emergency, a DNR dictates whether or not to administer cardiopulmonary resuscitation (CPR). It is a stand-alone document that can be used in conjunction with but does not take the place of other health care directives. A pre-hospital DNR should be in a prominent place where it is likely to be seen by first responders, as they will not take the time to look for one and instead will jump directly to helping, including the use of invasive means such as CPR and intubation. Most states also offer a POLST form that provides more detail than a DNR about the type of life-saving care desired, including wishes about intubation, antibiotics, feeding tubes, etc., in addition to the wishes regarding CPR. As with a DNR, a POLST must be signed by a licensed medical professional; a DNR also may be notarized or witnessed depending on the state. States vary on whether it must be signed by a physician. A POLST is usually printed on brightly colored papers so it will easily stand out in medical records (e.g., bright pink paper in California and New York and bright gold paper in Louisiana). POLST forms have different titles in each state. (Check the linked chart to see if a POLST is offered in your state and what it is called.)

Living will/power of attorney for health care/advance health care directive. A living will, also known as a health care declaration, is a document that describes health care wishes with regard to desired treatment measures. It is referenced when the patient is unable to direct his or her own care. A power of attorney for health care appoints an agent to make health care decisions for the principal when he or she is unable to communicate. The agent can have the authority to oversee the wishes established in the health care declaration. Some states combine the living will and power of attorney for health care into one document usually called an advance health care directive. (See the linked chart for the documents required in each state.)

Terri Schiavo and the importance of having a health care directive. The importance of having a health care directive regardless of age is well demonstrated by cases such as that of Terri Schiavo. This tragedy unfolded over the course of 15 years, as her husband and family could not agree on Terri’s wishes regarding medical care. Terri had collapsed and gone into a coma, and she was declared to be in a persistent vegetative state (“brain dead”) by several medical professionals. The only thing keeping her alive was the feeding tube. Her husband was appointed as her legal guardian; he and Terri’s parents disagreed over whether or not Terri would want to continue life-prolonging measures. The disagreement became a polarizing and contentious battle that cost millions of dollars, led all the way to the U.S. Supreme Court, and still ultimately resulted in her death. In this extreme case, the years of heartache and emotional distress could have been avoided if Terri’s loved ones had a health care directive to rely on authoritatively.

In general, your legal documents should be kept private. However, in the case of health care directives it is essential to communicate your wishes, not only through the documents but also in actual candid discussions with your family and your agent. This will go a long way in preventing cases such as Terri Schiavo’s.

Important considerations for appointing an agent for health care. Trust is extremely important; the agent you appoint should be someone you trust implicitly to make decisions regarding your medical care. The agent should be someone who can make decisions based on your wishes without regard to his or her own beliefs. For example, if you would like to “pull the plug,” you might not want to appoint someone with religious objections to doing so.

HIPAA authorization. Following the Health Insurance Portability and Accountability Act of 1996 (HIPAA), it is much more difficult to access another’s medical records, even a spouse’s. For example, if one spouse were in a car accident, the other spouse would not be able to access the injured spouse’s medical files to provide relevant information to the treating physician without court order or a current power of attorney for health care naming the spouse. Even with the power of attorney for health care, the agent would need multiple physicians’ agreement that the patient is incapacitated for the power of attorney to go into effect. This could waste valuable time. Therefore, a recent development in estate planning is to prepare a stand-alone HIPAA authorization, which provides authorization for the health care agent (or other such designated individuals) to have access to HIPAA-protected information as necessary to facilitate treatment.

Reviewing estate planning documents. Regular review of all estate planning documents is necessary. A common recommendation is to do so each year at tax time. Take a moment to ensure that the documents reflect your current wishes and mind-set. Update them as necessary; do not create them and forget about them, as wishes change with life circumstances and/or religious observances. The most recent copy of health care directives should be on file with the primary care physician and should be provided to any medical care facility upon admission.

Conservatorship

The saying “failing to plan is planning to fail” is particularly true with regard to old age and incapacity. The lack of an estate plan that includes a financial power of attorney and health care directives is a plan to fail. It is a gamble that you will never be incapacitated for any reason and will always be physically and mentally capable of directing your own care. If incapacity occurs for any reason—old age, illness, injury, etc.—then family members will have to file a legal action to request the court appoint a conservator or guardian. Your wishes will not be known when you are already incapacitated.

The most effective way to avoid conservatorship is to prepare durable powers of attorney (financial and health) before incapacity occurs. That way, the preselected individual(s) will be able to intervene to make financial and medical decisions if necessary, without extensive and expensive court involvement.

What is conservatorship? There are two types of conservatorship: over the estate (financial matters) and over the person (health matters). Conservatorships are necessary for people in comas, suffering from advanced Alzheimer’s disease or dementia, or with a serious injury/illness who have not made prior plans through durable powers of attorney. The conservator has a court-ordered responsibility to manage the affairs of the person who can no longer make his or her own financial or health care decisions.

Reasons to avoid conservatorship. Conservatorships are time consuming and expensive; they usually involve multiple court hearings, lawyers, and other professionals. Additionally, conservatorship proceedings create public records of personal matters that most people would prefer to keep private.

Conservators are required to make periodic reports/accountings to the court and usually must ask court permission prior to making any major decisions. They are usually required to post bond, which can be an unnecessary estate expense if the conservator is competent and trustworthy.

Anyone may object to conservatorship or to a specific conservator. Law establishes the order of conservators, and judges will appoint the conservator they feel is best for the conservatee. Absent strong evidence, judges are unlikely to appoint a non-relative as conservator. This can lead to distress, as an estranged relative would likely be chosen over a close friend. If there are no eligible relatives, the judge may appoint a public or professional conservator. Conservator expenses are paid out of the estate. Conservatorship ends only upon death or strong showing that such services are no longer necessary.

Consider the case of the singer Etta James as an example of why to avoid conservatorship. When she was dealing with leukemia and advanced dementia, her adult son and her husband of 41 years were duking it out in court over who could control her assets and direct her medical care. A settlement was not reached until her illness became terminal, at which time her husband was appointed her conservator, but he had control over only a limited amount of funds with which to cover her medical care. Etta James and her family suffered through the court process while they were navigating an emotional ordeal. Much of this trauma could have been avoided had she prepared all the appropriate estate planning documents and engaged in candid conversations with her family regarding her wishes. She did have a power of attorney for finances appointing one of her sons, but there were concerns over its validity owing to her mental capacity at the time it was executed. This highlights the importance of planning for life before life happens.

Conclusion

In the realm of estate planning, it is more important to plan for life than to plan for death. If you do not make your wishes known prior to incapacity, the opportunity will be lost. Proper estate planning, including durable powers of attorney for finances and health care, are the best way to avoid conservatorship. Plan now.

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