Making Cents: Preparing for complications associated with aging
By: John P. Napolitano, CFP®, CPA, PFS, MST
Not many people go through life wondering what will happen if they lose control over their mind or body. Yet the Alzheimer’s Association estimates that in 2017, close to 50 million people struggled with dementia. This number is likely to double every 20 years and may affect 130 million people by 2050.
As a family member, the warning signs may be subtle. There may be confusion, forgetting to pay a bill, missing a meeting or simply repeated instances of poor financial judgment. As a part of your regular financial planning, conversations about this sensitive topic should occur when it is clear that everyone is mentally aware and not impaired.
The conversation should first arise as your advisor delves deeply into your current estate plan. Within that plan, there may be several documents (or not!) to help assess your preparedness to deal with cognitive impairment. The documents that most current estate plans would have are the Health Care Powers of Attorney and a Durable Power of Attorney. These two documents should be coordinated when it comes to assessing someone’s cognitive capacity.
The Health Care Power of Attorney is the legal document that gives your care givers the legal obligation to speak with your health care agent regarding your medical records. These documents should be kept current and updated every 3-5 years or as soon as circumstances change. With current documents on file, you can have a conversation with your ailing loved one’s doctor to see if the Doc has seen signs of impairment or can recommend some testing to see if anything is going on.
The Durable Power of Attorney is a document that allows someone to act on your behalf for nearly everything. This document also needs to be current as many institutions will not accept one that isn’t. Beware that each institution has their own rules as to what is considered current. Ask your institution how fresh your Durable Power of Attorney needs to be for them to accept and rely on it.
The possibility of cognitive impairment is yet another reason why the use of lifetime trusts may make sense. Unlike assets in your individual name, any assets owned by your trust can then easily be managed by your back up trustee. Your back up trustee can be anyone you trust, and should also be current as people change and may or may not be the best fit going forward.
The challenge in using your trust document to artfully transfer the management of the assets to someone who is not impaired is the decision as to when you become impaired. A smart person can easily fake it for a while, and mislead the concerned family members. The most creative idea that I’ve seen in trust planning is to create a disability board of friends, family or beneficiaries to decide if the loved one needs help managing their affairs. This is much simpler than requiring 2 of 3 doctors to declare incompetence or some other methodology that may take time or involve the court system.
This information is not intended to be a substitute for individualized legal advice. Please consult your legal advisor regarding your specific situation. US Wealth Management, US Financial Advisors and LPL Financial do not offer legal advice or services.
John P. Napolitano CFP®, CPA is CEO of US Wealth Management in Braintree, MA. Visit JohnPNapolitano on LinkedIn or uswealthnapolitano.com. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. John Napolitano is a registered principal with and securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through US Financial Advisors, a Registered Investment Advisor. US Financial Advisors and US Wealth Management are separate entities from LPL Financial. He can be reached at 781-849-9200.