hen considering your options for retirement planning, certain investments tend to come to mind, such as 401(k) plans and IRAs. However, estate planning is one invaluable investment that tends to be overlooked—often until it is too late. While retirement accounts may offer appealing interest rates, a complete and welldrafted estate plan may offer an even better return on investment.
A common misconception about estate planning is that the investment doesn’t pay off until after you’ve passed away. This is simply untrue. In fact, certain estate planning documents, such as a Durable Power of Attorney for Financial Affairs (or DPOA) and a Health Care Power of Attorney may only be used during your lifetime—and their benefits cannot be overstated. Taking the time to plan ahead for your unavailability or incapacity means that YOU get to select the individuals who will make important decisions for you down the line. This proactive approach can eliminate the need for family members to seek judicial intervention to assist you with the management of your health care or financial affairs.
In the absence of a validly executed Health Care Power of Attorney or DPOA, many families find themselves before the court to pursue a guardianship over an elderly relative. Although the guardianship process varies from state to state, one thing is consistent—it can be a time consuming and expensive process. This is especially true in circumstances where there is family conflict or disagreement as to who should be appointed as guardian. In those cases, the court decides between the potential candidates based on evidence presented by the parties and the outcome may or may not be consistent with your wishes. In certain instances, this could result in the appointment of a total stranger to make decisions on your behalf.
A Health Care Power of Attorney and a DPOA prevent the need for guardianship by authorizing trusted individuals to act on your behalf for the management of your health care and financial affairs. By preapproving these individuals, you empower them to step in and make decisions immediately upon your incapacity or unavailability. For example, if you become unable to manage your financial affairs due to a stroke, your DPOA will authorize an attorney-in-fact to access and manage your finances on your behalf. Your Health Care Power of Attorney will authorize a Health Care Agent to make your medical decisions. Absent these documents, many states would require your family to file paperwork with the court seeking the authority to make these decisions on your behalf. In the event your family members were unavailable to make a timely filing with the court, the hospital or nursing home may file on their own.
A DPOA can also assist you during your lifetime, even if you are never rendered incapacitated. If you plan to spend your retirement traveling or splitting time between residences, a DPOA can be drafted to authorize a trusted individual to manage your affairs while you are unavailable. In other words, you can
appoint a friend or family member to collect your mail, manage certain accounts or collect rent from tenants. This method of financial management is far preferable to adding the individual as a joint owner on your various assets, which could provide them with unwanted carte blanche access to your money.
Additional estate planning documents, such as a Will and a Revocable Trust, carry the important benefit of preserving your legacy and distributing your assets according to your chosen scheme of distribution.
These documents, in conjunction with a DPOA and Health Care Power of Attorney, can be the foundation of a solid estate planning package. Importantly, the preparation of a quality estate planning package does not need to be expensive. Simple plans may be developed by competent local counsel for hundreds of dollars compared to the thousands of dollars, which are often expended in guardianship actions.
Therefore, preplanning is an obvious and sound financial decision. The laws surrounding estate planning vary from state to state, so it is necessary to find local counsel to assist you in the development of your estate plan. The National Academy of Elder Law Attorneys (www.naela.org) is an excellent resource for the location of competent local counsel as well as your local state bar association.