People should also work with a lawyer to execute a durable power of attorney. They should also contact a lawyer when they create a Health Care Proxy
The Power of Attorney document authorizes a named individual (the agent) to act on behalf of a person (the principal) if the principal becomes incapacitated. It applies only while the principal is alive. At death, the powers pass to the executor of the estate.
A key decision is whether to grant the power of attorney to a relative or to a professional such as an attorney. If an older person does not trust family members with this responsibility or is concerned that a family conflict may erupt over the chosen family member, appointing an independent professional may be the best alternative. Second marriages and mixed families raise the potential for problems in these areas.
Unfortunately, many cases of elder abuse and even stealing do involve family members, so it is worth being cautious in granting this power. The other important document is the health care proxy. Also called a health care power of attorney, this may be a standard state-issued form that spells out the person’s wishes for care at the end of life.
The wishes may cover the extent to which the person wants use of extraordinary measures that prolong life and whether to allow organ donation. It may name specific medical procedures to use or not use when the person is terminally ill and unable to make decisions.
Typically, the health care proxy form appoints a health care agent and an alternate health care agent to carry out the person’s wishes. Often these appointees are the spouse, who is typically named the agent, and an adult child, typically named the alternate.
Retirees should know that having a health care proxy in place is extremely important. It can relieve a family from a terrible decision-making burden at a time of extreme stress.
Probate assets are assets that people hold in their own names at time of death. These assets pass on to heirs according to terms of a will, subject to court supervision.
The probate process often entails delays and costs, but some estate planning strategies can be used to mitigate those drawbacks by passing assets to heirs outside of probate. These strategies include joint ownership, beneficiary designations and transfer on death designations. (Trusts can also be used for this purpose.)
Joint ownership. This refers to assets like bank accounts jointly owned with another person. It is a common strategy for couples. The joint ownership makes it far easier for the surviving spouse to make financial decisions following the death of a loved one.
Unless spouses struggle with issues of trust, it usually makes sense for the two to own assets like bank accounts, investment accounts and houses on a joint basis, with the right of survivorship.
Beneficiary designations. Many financial accounts allow the account owner to indicate (designate) the person or persons to whom to transfer the asset upon the owner’s death. People can make such designations for retirement accounts like 401(k)s and IRAs, and also for annuities and life insurance policies.
When they specify a beneficiary, the assets will pass to the beneficiary outside of probate. (Note that beneficiary designations take precedence over any provisions in a will.) Many people name primary and secondary beneficiaries, so that if the first beneficiary dies before the owner, there is no question about who the new owner will be.
Important: Retirees should review beneficiary designations periodically—perhaps once a year— to be sure they are up-to-date and that they continue to represent the account owner’s wishes.
The Health Care Proxy document is so important that experts generally recommend that several people have copies on file, including:
• Family members
• The family attorney
• The primary care physician
• The hospitals most often used
Naming beneficiaries is usually a straightforward process, but there are a few considerations to keep in mind. For example, a common designation might be “my wife, if she survives me, and if not, equally to my children.” A potential problem with this is that grandchildren, if they exist, could be left out of the inheritance if their parent predeceases their grandparent. Adding the legal term, per stirpes, to the designation can overcome this problem. Per stirpes essentially says that equal shares of the inheritance will pass to branches of the family.
If family members have special needs, it is wise to use caution before naming them as beneficiaries. If they receive an inheritance, it may cause them to lose government benefits. An attorney should be consulted before designating beneficiaries in such cases.
Transfer on Death. For taxable accounts held at brokerage firms, the owner of the assets may want to have the brokerage set up a transfer on death (TOD) provision. Some bank accounts use TODs, too. A TOD acts like a beneficiary designation, so the assets pass directly, outside of probate. This is particularly helpful if the owner has no spouse or partner to name as joint owner.
Many retirees want to consider their close friends and charities in their estate planning. Wealthy individuals may set up charitable trusts to fund specific causes.
Those with less wealth who want to make significant contributions can invest in charitable funds offered through investment companies. The account owner can take tax deductions at the time of donation, and specify scheduled payouts from the fund.
Business ownership is another area for special consideration. The owner will want to plan carefully who will run the business upon the owner’s death. Specialized life insurance may need to be factored into the transition, so that ownership will transfer with minimal disruption. The assistance of a good attorney can be critical to the outcome.