By , Nicholas Balenger, Elder & Disability Law Clinic Student, Fall 2020
Thanks to advancements in medicine and medical technology, Americans are living longer than ever before. As of 2017, the average life expectancy in the United States was 76 years for men and 81 years for women.[1] In many cases, individual’s capacity to make important financial and medical decisions will deteriorate well before they pass away. Therefore, it is important to dictate your end of life preferences now before your capacity to do so begins to significantly deteriorate.
Additionally, about 40% of US households headed by someone between 35 and 64 are projected to run short of money during retirement.[2] Luckily, there are government aid programs such as Medicaid that will pay for medical expenses and nursing home care for destitute individuals. But these programs have strict income and asset limits, making them available only to those in desperate financial straits. Therefore, if you wish to protect your assets to pass on to love ones or to supplement your quality of life as you age, there are certain steps you may want to take now.
This article outlines several estate planning documents that you may execute now to prepare for your later years in life. These actions should help reduce your risk of becoming financially destitute and ensure that someone with your best interests is making your desired medical and financial decisions. Moreover, these steps will help reduce the financial, legal, and mental burden placed on your children should you become incapacitated.
Execute a Will
The first and most obvious tool for smart estate planning is to execute a will. A will allows you to dictate how your assets are devised after your death. By executing a valid and well drafted will, the probate process (the legal process in which a court recognizes a will and appoints an executor to administer the estate and distribute the assets) will be expedited and therefore less expensive, resulting in your designated beneficiaries receiving their inheritance quicker and with less legal costs.
It is important to note that a vast majority of states, including Virginia, require strict formalities be met in order for a will to be valid and admitted to probate. Section 64.2-403 of the Code of Virginia requires that a will be (1) in writing, (2) signed by the testator (i.e. the person who’s will it is), and (3) attested by two credible witnesses. Failure to meet these formalities can result in the will being held completely invalid. These formalities have several intricacies and exceptions. Therefore, it is important to consult an attorney or legal aid group in order to execute your will.
Consider Purchasing Long-term Care Insurance
In Virginia, the average monthly cost for a private room in a nursing home facility is about $8,200 while community and assisted living facilities cost about $4,800 per month. Statistics show that about 52% of people turning age 65 will need some type of long-term care services in their lifetime – whether it be a nursing home, assisted living facility, or in-home services. And the older you get, the more likely you are to need long-term care. In 2018, 42% of people older than 85 needed some type of long term-care.[3]
Unfortunately, Medicare and private Medicare supplements very rarely cover the cost of long-term care facilities and services. Instead, long-term care is typically covered by either Medicaid (for the financially needy), “private pay” using the patient’s personal resources, or long-term care insurance.
When looking for the right long-term care policy, make sure you shop around for the best policy to fit your needs. You should be aware that most policies have limitations such as daily dollar maximums, duration of coverage, waiting periods, and eligible facility lists. Many insurance companies may also not issue long-term care policies to people with preexisting conditions – further emphasizing the importance of obtaining coverage earlier rather than later.
For obvious reasons, nobody wants to bear the brunt of the ever-increasing costs of long-term care. The combination of the high likelihood of needing long-term and the financially devastating result of not being covered makes it an ever-more prudent financial decision to invest in long-term care insurance.
Execute a Living Will
A living will is a document that outlines an individual’s preferences on how they wish to be treated should they become terminally ill or in a permanent vegetative state. In other words, this is a document that an individual creates to dictate future healthcare decisions but does not become effective until the onset of incapacity.
Living wills typically have two central elements: (1) a clear statement indicating that if incapacity occurs, the instructions in the living will should dictate the type of treatment they should receive, and (2) a statement that indicates under what conditions life-sustaining treatment should be terminated. It is important to note that state laws typically require formalities such as that the document be in writing and signed by the patient.
Medical Power of Attorney / Advance Directives
A medical power of attorney is a document through which an individual appoints a trusted representative, usually a close family member, to make medical decisions on their behalf in the event that they become mentally incapacitated. The document can go beyond appointing an agent and dictate certain healthcare directions you desire related to mental health issues, chronic disease issues, and your wishes regarding admission to certain types of healthcare facilities.
Virginia requires that an advance directive be signed by the declarant in the presence of two subscribing witnesses. Virginia allows the document to specify the health care the principal does or does not authorize, appoint an agent to make health care decisions, and specify how to donate their body or organs. [4]
Durable Power of Attorney
This is a document that authorizes someone to act on your behalf to make medical, financial, and legal decisions for you. The individual appointed to make these decisions is referred to as an agent and they need not be an attorney. Rather, the appointed agent is typically a close family member or loved one.
Your agent can be authorized to perform acts such as buying and selling property, managing bank accounts, applying for benefits, and filing your tax returns. Typically, the agent’s authority becomes effective once you become incapacitated. If you become incapacitated before designating a durable power of attorney, your family may have to go to court to have you declared incompetent before they can begin to make these decisions for you. So, in order to avoid court costs and attorney fees, it is important to designate a durable power of attorney before you become incapacitated.
Special Needs Trust
If you or a loved one has been diagnosed with a mental disability, physical disability, or chronic illness, you should consider creating a special needs trust (SNT). A SNT allows you to set money aside to financially support an individual with special needs. Under this arrangement a trustee will be appointed to oversee the trusts management and allocate funds to the beneficiary.
The best part about a SNT is that the assets in the trust do not count towards the beneficiary’s assets for purposes of determining his or her eligibility to qualify for public assistance programs like SSI and Medicaid. Therefore, an individual with a SNT will be able to receive public assistance to pay for their medical expenses and also receive assets from the SNT to pay for things such as medical expenses Medicaid will not cover, travel, and personal luxury items that will enhance their quality of life.
Conclusion
The process of aging and the legal and financial concerns that come with it can be daunting. It is important to consider taking steps now in order to reduce the burden on your loved ones later in life when you may become unable to make financial or medical decisions for yourself. You may take any or all of the mentioned above. By doing so, you will be able to protect your financial and medical interests later in life and ensure that you and your family are prepared and taken care. Finally, due to the complexity of the steps outlined above, it is recommended that you consult an attorney before making these decisions.
[1] https://www.ssa.gov/oact/STATS/table4c6.html
[2] https://www.ebri.org/retirement/publications/issue-briefs/content/retirement-savings-shortfalls-evidence-from-ebri-s-2019-retirement-security-projection-model
[3] https://www.morningstar.com/articles/957487/must-know-statistics-about-long-term-care-2019-edition
[4] https://law.lis.virginia.gov/vacode/title54.1/chapter29/section54.1-2983/