Wealth Advisory & Planning
July 19, 2022
Guide for Planning Forward
Memory loss and the physical and emotional changes that come with aging can be overwhelming. It would be comforting, however, to know that should severe memory loss or any other debilitating condition occur, family members would be well prepared to oversee your daily needs, as well as their own, managing the finances alongside the delivery of appropriate medical and emotional care.
Understanding — and acting on that understanding — only comes through communication. By talking to family members and trusted advisors in advance about issues relating to long-term disability and physical decline, a family can more effectively move forward together. These conversations also increase the likelihood that each person’s needs and expectations will be met. Family dynamics are also an important consideration when determining how to delegate responsibilities to a spouse or to a next generation.
Your doctors, Glenmede wealth advisors and other practitioners are experienced in facilitating family discussions on aging. Reach out for support and initiate these conversations as early as possible.
While you are able, we suggest gathering all important paperwork, along with duplicate copies, in one location. This might be a desk drawer, personal safe, safe deposit box or with an attorney or wealth advisor. Next, tell someone you trust where to find this information. You do not need to give them access to these documents; you want to ensure a reliable person(s) knows the location and has proper authorization if needed.
What each of us needs to collect may differ. When considering what documents to include, ask yourself: “Does my family have everything needed to ensure my care needs and financial obligations are met?”
Glenmede has created a tool to assist with this otherwise overwhelming task — Guide for Family and Advisors. The guide, available upon request from your Glenmede advisor, identifies the types of information aging persons should gather for family members and caretakers.
Documents you will need
Progressive diseases like Alzheimer’s affect people differently. It is important to get your affairs in order while you are able to make decisions and clearly communicate your wishes. There are several documents that could help ensure your medical and financial wishes are recorded, including:
- Revocable trust (also known as a living trust)
- Power of attorney (POA), including financial and healthcare
- Advance directives for healthcare
- Living will
- Do not resuscitate (DNR) and do not intubate (DNI) directives
- Medical release of information
- Hospital visitation form
Prepare a will, or if you already have one, ensure the document continues to reflect your current wishes and assets. Only you have the authority to make changes. An attorney-in-fact, an agent acting under a POA or a guardian cannot implement changes. Once you lose testamentary capacity, you lose the ability to alter your will.
Testamentary capacity is a relatively easy standard to meet, and having early dementia, for instance, does not mean an individual lacks the ability to establish a will. The legal capacity to execute a contract, a trust or a POA may be slightly different. Individuals with deteriorating cognitive abilities may appear to have testamentary capacity one day and not the next, early in the morning but not late in the day. Delusions may cloud the perception of reality. If capacity is at all a concern, an individual should consult with the family attorney for the best way to proceed.
A revocable trust is created when an individual (known as the grantor or settlor) names a trustee to administer the provisions of a trust agreement. The grantor retains the right to change all provisions of the trust at any time, to demand assets from the trust or revoke it fully or in part. The trustee(s) is one or more persons, and can include the grantor, other individuals or a trust company. A revocable trust is most often referred to as a “will substitute” because it may contain many or all of the dispositive provisions otherwise addressed in a will. Nonetheless, most individuals still need a will, even if there is a revocable trust agreement.
Revocable trusts are created for a number of purposes, including:
- Uninterrupted investment management through disability and death
- Professional management of the grantor’s personal financial affairs, including bill payment, upon disability of the grantor or earlier
- Avoidance of state or county probate
- Maintaining a level of privacy (wills, but not trusts, can often be viewed by the general public)
Power of attorney
A POA allows for the appointment of an agent or attorney-in-fact who will be entrusted to take care of your needs should you become unable. It is important to properly prepare this document; otherwise a court may need to appoint a guardian or conservator. Even for married couples, a POA remains necessary for separately owned property. Separate POAs for finances and healthcare, or one master POA that encompasses both, can be established.
You need not appoint the same person in each document, and you may opt to appoint multiple people and named successors. For example, some individuals name all the adult children as agents, requiring siblings to act jointly or by majority. Some states even allow for the appointment of an agency as the attorney-in-fact, which is especially useful if you do not have family or friends to hold this position.
A POA may be durable, meaning it can take effect immediately, or springing, meaning it takes effect only when the creator becomes incapacitated.
Advance directives for healthcare
Along with preparing for your financial well-being, you should also establish your healthcare wishes. Several documents are designed to help with this task, each with a different purpose.
Cash flow, expenses and investing
Long-term personal care expenses can be significant, and there are many ways to assess these costs. The first step is to update your financial plan. Work with your wealth advisor and wealth planner to estimate the costs of long-term care and determine if you have sufficient assets. A realistic assessment of the financial landscape will help mitigate future anxiety for you and your family. The realistic assessment should also cause you to re-evaluate the risk profile and time horizon upon which your investment portfolio is based, perhaps leading to a change in your asset allocation.
Costs of care
For persons over 65 and those qualifying for Social Security disability, most medical costs (including doctors’ visits, medication and medical equipment) for the diagnosis and treatment of Alzheimer’s disease and dementia are covered by Medicare. However, the cost of caregiving is not covered by Medicare.
Persons with Alzheimer’s will ultimately require a fully supervised environment, where someone is responsible for activities of daily living such as bathing, feeding and housekeeping and providing safety. Many families prefer to care for individuals at home for as long as possible, incurring some but not all the daily costs. Others choose a retirement community where a memory care unit will be available when needed. Still, others use assisted living facilities or nursing homes. The quality and cost of each option vary widely. Staying at home may be less expensive initially, but there will be costs incurred to provide family members with professional support. Memory care units can offer an environment tailored to provide patients with an uplifting physical environment. The Genworth 2021 Cost of Care Survey indicates the national median cost for a private one-bedroom unit in a nursing home is $108,405 per year. A one-bedroom memory care unit or apartment that also accommodates a spouse could cost twice as much.
Many costs associated with the care and supervision of a severely impaired person may be tax deductible. While the tax rules are complex, care costs generally are deductible if a person is unable, due to the loss of functional capacity, to perform at least two activities of daily living without substantial assistance from another. Expenses incurred for personal aides, nurses, other para-professionals and respite care are often deductible.
More complicated is an analysis of whether family members can be compensated for caregiving services on a tax-advantaged basis. Whether family members or unaffiliated caregivers are employed, consult with a tax advisor regarding federal and state employment tax and insurance requirements.
Medicaid will often pay for long-term care for the needy. While the rules vary from state to state, generally a Medicaid applicant who is 65 or older may keep up to $2,000 in countable assets to qualify financially. Medicaid programs consider certain assets to be exempt or “non-countable” (usually up to a specific allowable amount). Any cash, savings, investments and property that exceed these limits are considered “countable” assets and will count toward an applicant’s $2,000 resource limit. A Medicaid specialist, an elder law attorney or other qualified advisor can advise on how a spouse can continue on financially and when or how a person can be divested of assets to become eligible for Medicaid.
This material provides information of possible interest to Glenmede’s clients and friends, and does not provide investment, tax, legal or other advice. It contains Glenmede’s opinions and/or projections, which may change after the date of publication. Information obtained from third-party sources is assumed reliable but is not verified. Any potential outcome discussed, including but not limited to performance, legislation or tax consequence, ultimately may not occur due to various risks and uncertainties. Clients are encouraged to discuss anything of interest in this material with their tax advisor, attorney or Glenmede Relationship Manager.