People plan to die. We know it’s going to happen. Perhaps we have life insurance to cover our financial responsibilities and care for our loved ones. We may have a Will to divvy up our assets at death. It’s usually not something we look forward to. But, we know it’s going to happen.
But, we don’t expect to become incapacitated. Nobody wants to be unable to manage their affairs. But, each year countless people become unable to manage them. For some, it’s a temporary illness or injury which removes their ability to function, such as a medical procedure. Others become unable to manage their own affairs due to Alzheimer’s disease or some other kind of dementia. In fact, almost 15% of Americans over age 70 suffer from dementia.
You can and should plan for incapacity. Here are some ways to plan:
- Disability insurance. This insurance will replace a portion of your income in the event of your inability to work. Your inability to work could be due to physical or mental impairment.
- A Property Power of Attorney. A Property Power of Attorney allows you to designate someone to act for you regarding your property during your life. It allows someone to manage assets in your individual name when you are unable to make the decisions yourself. This power of attorney should allow the agent to do Medicaid Planning, discussed below.
- A Healthcare Power of Attorney. This power designates an agent to make healthcare decisions for you when you are unable to make them for yourself.
- A Health Insurance Portability and Accountability Act (HIPAA) Authorization. This authorization designates who can access your protected health information. Without such a document, a hospital or other provider might not be able to tell your loved ones any information about your care, or even that you are in their care.
- A Revocable Living Trust. A trust holds title to property during lifetime. At your incapacity (or death), your successor trustee manages the assets according to your instructions in the trust. Unlike a Will, a trust allows for the management of your assets if you become incapacitated. A robust trust will allow for Medicaid Planning with your assets.
Medicaid Planning. Sometimes incapacity can result in the need for expensive assistance. Nursing home expenses increase each year and are now over $112,000 per year, according to a recent Genworth study. Paying for such care can be very difficult. Medical insurance doesn’t pay for it. Neither does Medicare, except for a very limited period of time. But, Medicaid pays for such care if you meet their strict guidelines for income and resources. In other words, it is needs-tested. Often, you can qualify by shifting assets from countable categories to non-countable categories, like a home. But, if you are incapacitated, you don’t have the ability to shift those assets, unless you’ve given someone else the power to do that planning for you, such as in the Property Power of Attorney and Revocable Living Trust discussed above.
In addition, if you plan well in advance, you can protect even more of your resources from exposure to long-term care expenses. A specialized Medicaid Trust can be used to remove assets from consideration. Assets in such a trust aren’t countable resources. It’s like taking chips off the table in the casino.
Whether you want to do simple incapacity planning, or you want to protect even more assets from exposure to long-term care expenses, planning for these issues (which people don’t often discuss) is critical.
Stephen C. Hartnett, J.D., LL.M.
Director of Education
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (858) 453-2128