For many people, the thought of planning for their own incapacity can be uncomfortable. The idea that you might lose your mental faculties, rendering you unable to make informed decisions about your finances and well-being, is not pleasant, but ignoring that possibility does not make it go away. Incapacity could be brought on by a car accident, illness or old age. Making a plan for your potential incapacity gives you the opportunity to think about what is most important to you and how you can best protect yourself and your loved ones should you ever experience a critically disabling event.
A proper “incapacity plan” will often contain both estate planning tools and financial solutions. Estate planning encompasses far more than simply making sure that your Last Will and Testament is complete; it is about planning for life. Every estate plan should include a Durable Power of Attorney for Finances and a Health Care Power of Attorney, as these documents are utilized while you are alive and are simply unable to make your own financial and/or medical decisions. Similarly, financial planning encompasses far more than simply planning for educational expenses or retirement. As part of the financial planning process, it is important to be aware of the financial solutions that can be advantageous in the event that you become incapacitated.
As you begin to think about your own “incapacity plan”, you should consider having the following safeguards in place:
Durable Power of Attorney. A Durable Power of Attorney for Finances is a legal document that allows you to appoint an individual to assist you with all of your day-to-day financial matters if, due to illness or injury, you are unable to handle those matters on your own. Generally speaking, your agent will be able to assist with paying your bills, managing your bank accounts and/or investments, filing your taxes, managing any real estate that you own, and applying for or adjusting any government or retirement benefits that you are eligible for. If you become incapacitated and you do not have a Durable Power of Attorney, your loved ones will have to obtain a legal guardianship over your estate to perform the tasks outlined above.
Health Care Power of Attorney. A Health Care Power of Attorney is a legal document that allows you to appoint an individual to make health care and/or end of life decisions on your behalf if, due to illness or injury, you are unable to make those decisions on your own. Your Health Care Power of Attorney typically becomes activated when two physicians determine that you are “incapacitated”. Generally speaking, your health care agent will have broad authority to help direct your health care by scheduling appointments, seeking second opinions, and determining what treatments to obtain, based on their discussions with your physicians. You also have an opportunity to express your specific wishes with regard to end of life care and life sustaining treatment or procedures. If you become incapacitated and you do not have a Health Care Power of Attorney, your loved ones will need to obtain a legal guardianship over your person to make medical and health care decisions on your behalf.
Long Term Care Coverage. “Long-Term Care” refers to a broad range of services that you may need to utilize as a result of a chronic illness or disability. It often encompasses medical services, therapies, and supportive services, such as providing assistance with bathing, dressing, medication distribution and meal prep. The longer a person lives, the more likely it is that he or she will need some kind of long-term care, whether that care is administered in your home or in a skilled nursing facility.
There are several ways to pay for long-term care, one of which is purchasing a Long-Term Care Insurance policy that would cover your home care or nursing home expenses in the event you needed to obtain long-term care services. Long-Term Care Insurance policies do go through an underwriting process, and the premium is often dependent on your age and health status. It may be advantageous to begin exploring this option well before you anticipate a need for long-term care because you may be able to lock-in at a lower premium. If you purchase a Long-Term Care Insurance policy that qualifies for Wisconsin’s Long-Term Care Partnership Program status, you may also be able to protect some or all of your assets and still qualify for Medicaid in the event your long-term care needs extend beyond the period covered by your qualified Long-Term Care Insurance policy.
Another way to cover long-term care expenses is by purchasing a Life Insurance policy that has a Long-Term Care Rider attached to it. The amount of long-term care coverage under these policies is directly tied to the amount of life insurance in force. As a result, the death benefit of the life insurance policy will be reduced by any loans or withdrawals taken out to cover long-term care expense.
If you have not purchased private long-term care coverage and you need to obtain long-term care services, then you may apply for Medicaid benefits, which will pay for most health care costs, including nursing home and community-based care for eligible recipients. To become eligible for Medicaid, you must be a Wisconsin resident and your income and assets must be below the monthly program limit. Generally speaking, you must have very limited income and assets before you will become eligible for Medicaid. This often results in the need to “spend-down” your assets. If faced with this situation, it may be beneficial to consult with an elder law attorney or a Medicaid benefit specialist to ensure that you are spending down your assets in an appropriate fashion. Certain financial transactions may trigger a penalty and render you ineligible for Medicaid benefits for a period of time.
Planning for one’s incapacity is becoming increasingly important given that our life expectancies, together with the cost of care, continue to rise. Putting your wishes in writing and ensuring that there are appropriate funds available for your care can help to provide peace of mind for both you and your loved ones. Consider discussing these options with your legal and/or financial advisors to better understand what solutions may be appropriate for your unique situation.
Debra A. DeLeers is a financial advisor with Northright Financial, LLC and can be reached by email at firstname.lastname@example.org or by phone at 920.712.7800.
Securities offered through Geneos Wealth Management, Inc. Member FINRA/SIPC. Advisory Services offered through N.E.W. Advisory Services, LLC. These are the views of Debra DeLeers and not necessarily Geneos Wealth Management, Inc. or N.E.W. Advisory Services, LLC. Geneos Wealth Management and N.E.W. Advisory Services do not provide tax or legal advice.