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Are you prepared for Incapacity?

Accidents happen. They’re sudden and generally unexpected. But at least people can wrap their minds around the fact that a change has occurred and subsequent decisions must be made, often by people not involved in the accident. Aging tends to work differently. It tiptoes up so you don’t even realize it’s happened. This makes planning for potential incapacitation very difficult. But if you truly want independence and control of your future, the best time to make decisions is now.

If you’re wondering when “now” is … it’s now. While it may be a good idea to make incapacitation plans and decisions while you’re still working, it’s definitely a good idea once you retire. Do it early so you can enjoy a confident retirement knowing that your bases have been covered. Do it for your spouse. Do it for your children. It’s not a weakness; it’s a form of control. Ensure that the decisions you make for every possible contingency are reasonable and accommodating. Because when an accident happens, or old age pops out from its hiding place in the mirror, you may not have that control anymore.

Due Diligence
Decide where you want to grow old. If you want to live the rest of your life at home, this may be a perfectly reasonable goal — if you plan for it properly. This means researching how much it would cost for various stages of elder care, ranging from occasional help around the house and running errands to daily assistance to full-time care. Investigate prices for these types of services in your local area. Estimate a range for those costs, and then add an inflation factor for the next 10, 20 and 30 years. Over that time frame, inflation can reduce your buying power, particularly once you’re on a fixed income. To properly plan for various levels of an enriched assisted lifestyle, you should have a general idea of how much that will cost. If you’re considering moving to a senior living community, conduct visits and find out how much they cost and what you get for your money. Inquire if there’s a waiting list. Ask what the ideal age range is for moving into such a community, and why. Even if you decide to “age in place” at home, it’s smart to compare costs so you know how much living in a care facility would cost versus what you can expect from in-home assistance.

Long-Term Care Insurance
Consider purchasing long-term care (LTC) insurance, hybrid life insurance or an annuity with LTC benefits. Whatever product you purchase, read the entire contract — including the fine print — very carefully. Many of today’s contracts do not provide coverage until the beneficiary meets certain criteria, such as being unable to bathe or feed oneself. Even when benefits kick in, they may be delayed for several months and may stop paying altogether after three to five years. It’s very possible, particularly in this day and age when people are living longer, that you could outlive the timeframe of your LTC coverage.(1) It’s important to have contingency plans in place for housing and long-term care options now, because you may not have a say in how your care and money is managed once you become incapacitated

It is recommended that retirees put as many financial decisions and transactions as they can on “autopilot”. Today, Social Security checks are direct deposited and most utility and other regular bills can be paid automatically from the same bank account.(2) As for investing, there are two important strategies to follow. First, work with an advisor to create a retirement income withdrawal plan and an asset allocation strategy designed to last throughout retirement. Once that’s in place, arrange for the portfolio to be rebalanced automatically and dividend income and RMDs to be automatically deposited into your bank account. Next, give someone you trust power of attorney (POA). This means the person will have the power to act on your behalf. A power of attorney assignment can be general to act on your behalf at any time, limited to a specific transaction or time period, or triggered only if you become incapacitated. While many elderly couples assign each other as power of attorney, if they age together they could both lose mental acuity in similar progression, so it’s a good idea to assign an adult child or another trusted person as POA.(3) Some financial advisors also have their clients sign an incapacity agreement, which basically gives them permission to contact the POA or another close family member if they believe the client may be acting financially irresponsible due to age-related decline.(4)

Consider Who Should Handle Finances …
“If the spouse without dementia isn’t knowledgeable about the pair’s investments and finances, it’s probably now too late to become educated.”(5)

As we age, we become both more suspicious and more trusting. In other words, we may no longer wish to put checks in the mail or trust online bill paying, but at the same time we might trust a friendly new neighbor who offers to do our shopping. Many seniors become susceptible to losing money by handing over a credit card or banking information to someone new in their life who is helpful and kind — thinking this is more convenient than burdening their children for help.(6) However, one of the decisions to make early on in retirement is who we can and should trust for the long haul.

Estate Planning
In addition to a power of attorney, seniors should complete other elements of a comprehensive estate plan such as a standard will, health care proxy, living will and perhaps a living revocable trust to protect their assets. You may wish to coordinate your incapacitation plan with your financial advisor, estate planner and members of your family so that everyone is on the same page. The last thing you want is bickering over how to handle matters during a crisis situation, especially if you have no opportunity to intervene.

Incapacitation Checklist
Incapacitation can take many different forms, both physical and cognitive. The following checklist can help you consider various items and how you would like to address them should you and/or your spouse become incapacitated:

Inability to drive – how will you run errands, shop for groceries and go to doctor’s appointments?
Inability to maintain home – how will you handle mowing, raking, cleaning gutters, shoveling snow, cleaning house and cooking meals?
Paying bills – is there someone you can add as a joint account owner on your bank accounts to make transactions and pay bills for you?
Important documents – is there someone who knows where you keep vital paperwork such as insurance policies, bank account and investment information, tax records, etc.?
Health care – in addition to a health care proxy, you also may wish to sign a HIPAA Authorization to permit health care professionals to speak with friends or family members regarding your health.
Final Thoughts
One of the key components to incapacitation planning is to identify people you trust — while you are still able — who can make decisions for you. While you may not wish to share details about your finances or burden adult children, consider the alternative — they may have to go court to have you legally declared incapacitated in order to make decisions on your behalf. This is a far more public, expensive and time-consuming process that can be avoided by engaging them in your affairs now. Remember, incapacitation planning isn’t just for you, it’s for your loved ones as well. It can help your spouse ensure that bills get paid and finances are managed should you need to go into the hospital or a rehabilitation center for a while. It can enable your children to enjoy visits without wondering what they will need to do if you can’t do for yourself. The best gift you can give your loved ones is communicating a sound, multi-layered plan for how matters should be handled, decided upon and paid for should you become incapacitated.

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