Most people have a general idea of what estate planning is. Fewer, however, are familiar with the concept of elder planning. In a nutshell, estate planning is concerned with what happens to your assets after you die, while elder planning includes both estate planning and planning for what happens to your assets before you die. Ultimately, elder planning is a form of personal future planning.
Elder planning includes provisions for:
- Long-term care, such as residence in a nursing home;
- Retirement planning, including ways to secure government benefits such as Medicaid while protecting your assets at the same time;
- Incapacity planning, like establishing a guardianship or a special needs trust to protect you in case you become incapacitated at some point; and
- Traditional estate planning (wills, trusts, etc.).
As a practical matter, elder planning most definitely requires the assistance of a lawyer. Ideally, you should make all the foregoing arrangements in early adulthood and update them as the need arises.
Most people are going to require some form of assistance in their old age. You might require at-home care, round-the-clock supervision in a nursing home, or something in between these two extremes. An accident could lead you to require this type of care even before old age.
Nursing home care, however, costs $100,000 per year or more, which is more than most people earn. The best way to provide for such expenses is long-term care insurance. If you wait too long to purchase long-term care insurance, however, it becomes prohibitively expensive.
If you anticipate that you might require long-term care (you have a family history of Alzheimer’s disease, for example) or if you simply wish to manage the risk of long-term care that everyone faces, an elder law attorney can help you clarify your options and understand your risks.
Sound financial planning includes personal savings, investment vehicles such as 401(k) plans, and government benefits such as Medicare/Medicaid, Social Security, veterans benefits, and more. An elder planning attorney can help you maximize the utility of these benefits through shrewd financial planning.
You become incapacitated when you become unable to manage your own financial and/or personal affairs. Your incapacity might be mental—dementia, for example—or it might be a physical problem that leaves you unable to communicate your thoughts or decisions. Either way, you are likely to benefit from advance planning.
One common option is guardianship. In a guardianship, one person, known as the guardian, is empowered to make decisions on behalf of an incapacitated person, known as the ward. A guardian might be granted authority over your finances, your personal decisions, or both. Guardianship must be established by a court, and they are subject to abuse if the court chooses the wrong person to serve as guardian. To avoid this, you can designate a preferred guardian while you still have the capacity to do so.
A power of attorney or a healthcare proxy is possible alternatives to guardianship. Since these require your consent, however, they must be set up before you become incapacitated. A power of attorney grants certain specified decision-making authority to someone you designate as your attorney-in-fact. A healthcare proxy allows you to select someone to make healthcare decisions for you if you can’t.
Estate planning, as mentioned above, concerns the disposition of your assets after you die. The two most popular vehicles that people use for this purpose are the last will and testament and the living trust. In a last will and testament, you specify who gets your assets after you die. In a living trust, you appoint someone to manage the assets that you place into the trust, in accordance with instructions contained in a trust document that you create.
A living trust is often the better option. A last will and testament is subject to the time and expense of probate, which can be a major inconvenience. In a living trust, the trust arrangement continues seamlessly after you die. Both of these instruments must be created before you die or become incapacitated.
Mistakes to Avoid
Certain types of mistakes in elder planning are more likely than others. Following are some of the most common.
Failure to Place Your Assets into a Living Trust
By allowing your assets to pass to your beneficiaries through probate, you will be setting them up for a lot of unnecessary inconvenience and uncertainty. You might even trigger a damaging will contest this way.
Even if you set up a living trust, you have to be sure to actually put your assets into the trust. Assets that remain in your name rather than that of the trust will still be subject to probate.
Limiting Your Elder Planning to Estate Planning
The most common elder planning mistake is not having a plan at all—or having only a partial plan. You might have created a reasonably comprehensive estate plan but failed to plan for your own incapacity, retirement, or long-term care needs.
Failure to Plan for Incapacity
Should you become incapacitated without prior planning, you will have no power of attorney or healthcare proxy to fall back on. A court-appointed guardian might be your only option. A court will most likely appoint a close relative as your guardian. If there is someone in your close family who you definitely don’t want making decisions for you, plan for incapacity in advance.
Failure to Plan for Long-Term Care Needs
Without insurance, long-term care is subject to a middle-income trap. If you have a low income you might be forced to throw yourself at the mercy of Medicaid, while if you have a high income you might be able to comfortably afford nursing home care. If your income puts you in the middle class, however, you will not be eligible for Medicaid. As a consequence, you might be forced to liquidate all your possessions to be able to afford long-term nursing home care.
Failure to Update Your Elder Plan
Circumstances change over time, and your elder plan needs to change as well. Changes in the law as well as your financial circumstances or even your goals can exert a drastic effect on the utility of your elder plan.
It’s Time to Begin
No matter what age you are, you will be better off if you begin elder planning now rather than later. The solution is highly individualized because no two people’s needs are exactly alike. Please contact the Law Office of Andrew M. Lamkin, P.C. online or by calling 516-605-0625 so that we can discuss your options.