TOPIC 86: INCAPACITY PLANNING in .NET framework

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TOPIC 86: INCAPACITY PLANNING
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1 Disability or incapacity can be de ned as the inability to act on one s own behalf 2 Care of client s dependents guardianships (also called conservatorships) A A guardianship is a state-imposed arrangement that results from an action brought by an interested party; it requires a nding such as mental illness, incompetence, or the like B The parties involved in a guardianship are (1) The ward or protected person (2) The guardian or conservator (3) The state C Voluntary guardianship allows the ward to choose the guardian It provides the protection of the court and state law, but it is relatively simple to dissolve and thus is often useful only as an interim arrangement in times of crisis or pending completion of other arrangements 3 Care of person and property (see also, Topic 83) A Planning scenarios (1) Provisions for managing the nancial affairs of clients in the event they are unable to do so themselves (durable power of attorney, revocable living trust, and nominations of persons to serve as guardian or conservator) (2) Providing support for clients who are no longer self-supporting and have not accumulated enough assets to maintain their cost of living (3) Planning for long-term health care (4) Protecting property from claims of the state or other government (5) Planning for changing taxes B Comparison of management techniques (1) Durable power of attorney versus conservatorship The advantages of using the former for managing an incompetent person s property are as follows: (a) It avoids both public proceedings and the need to determine the status of the principal (b) Various legal expenses and delays are avoided inasmuch as court appointment of a duciary is unnecessary (c) It is relatively uncomplicated and inexpensive to create and is easy for the principal and agent to understand (d) Title to the assets remains with the principal (2) Living trust versus conservatorship The advantages of using the former for managing an incompetent person s property are as follows: (a) The greater exibility of a trust (b) The determination by the grantor of what provisions will be included in the trust document, such as who will be the duciary (trustee), what the standard for incompetency will be, what the trustee s powers will be, and so forth
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Topic 86: Incapacity Planning - 299 (c) Smaller administration costs, because a conservatorship requires frequent court approval of transactions (d) Wider management authority, allowing the trustee to conduct more kinds of transactions with the grantor s property than would be possible under a guardianship or conservatorship (e) Exception: With less court supervision, overreaching and abuse of power are more likely (3) Living trust versus durable power of attorney The advantages of using the former for managing an incompetent person s property are as follows: (a) Assurance that the transactions will be accomplished Although some third parties may not recognize the authority of an agent under a durable power of attorney, the trustee s power to act according to the trust agreement must be honored (although most states will not compel a third party to follow the directions of an attorney-infact, states generally will compel others to recognize a trustee s authority over trust property) (b) The management and distribution terms are usually more detailed in a trust (c) Exception: A trust is more costly to create and maintain 4 Disability insurance features of a good disability policy (see also, Topic 27) A Select a policy that covers partial disability, not total disability B Select a policy that uses your occupation de nition, not any job de nition C Select a policy that is guaranteed renewable and noncancelable D Choose a policy that covers disability resulting from both accident and illness E Choose a policy that pays at least through age 65 F Select a policy that pays at least 60 percent of take-home pay G A three-month waiting period generally offers the best value for the premium dollars paid H Cost-of-living adjustments should be included in the policy I Standard-of-living adjustments should be included in the policy so that the insured can increase the bene t amount without a medical exam 5 Long-term care insurance features of a good long-term care policy (see also, Topic 28) A The policy should be guaranteed renewable for life B A three-month waiting period generally offers the best value for the premium dollars paid C The policy should provide coverage for skilled and intermediate care, as well as for custodial care, which does not require the engagement of licensed medical professionals D Long-term care at home can be more attractive than a residential or nursing facility E Select a policy that does not require the insured to be hospitalized before entering a nursing home for care F Select a policy that provides long-term care coverage for Alzheimer s disease G Choose a policy that provides for the anticipated rise in the cost of long-term care H Select a policy that provides for a waiver of premiums in the event of disability and provides level premiums for life I Select a policy that provides a favorable bene t period 6 Medicaid planning A Medicaid is a joint federal and state program that provides assistance for health care to certain aged, disabled, or blind individuals The intent is to provide help to needy individuals This can be integrated with the requirements for Supplemental Security Income (SSI)
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300 - Estate Planning B If a client s assets exceed a certain dollar value, the individual will be ineligible to receive Medicaid bene ts The income of the individual and spouse is also considered C Distributions from an annuity do count for purposes of the income test, but do not count under the assets test D The individual s personal residence is generally not included as an asset for purposes of Medicaid eligibility, but this really depends on the state law E There are strict limits on transfers of assets to achieve Medicaid eligibility For example, the value of any transfer of assets within 36 months before the individual makes an application for Medicaid will be considered an available resource There are some exceptions, including transfers to children who are caretakers for their parents F In general, for assets transferred to trusts, the look-back period is 60 months from the date the individual makes a Medicaid application or the date an individual enters a nursing home G Assets in a revocable trust are considered to be available resources, regardless of when the trust was created A 60-month look-back period applies to transfers between trusts H Irrevocable special needs trust (1) This is a bypass trust, which is not included in the gross estate of the bene ciary, and its assets are not counted for purposes of eligibility under Medicaid (2) The settlor retains the following powers: (a) While competent, the power to act as trustee (b) While not competent, the right to invade principal on the basis of health, education, maintenance, and support (c) The power to appoint an unlimited amount of trust property to family members other than the trustor (d) The power to change bene ciaries in order to reallocate the estate amount among the children 7 Viatical settlements (see Topic 30) 8 Business disability coverage (see also, Topic 39) A The disability of business owners or key employees poses a serious risk to a business s nancial health The problem is especially evident in small businesses in which the workforce may not be large enough to have a backup for critical tasks Even if the primary business is halted because of the disability of the owner or a key person, certain aspects of the business must continue (eg, accounts payable and receivable) B Disability insurance can be written to cover business overhead, key person disability, salary continuation for owners or key persons, or a disability buy-sell agreement (1) Business overhead policies cover many of the ongoing operation costs of a business while the owner is totally disabled (2) Key person insurance allows a business to nd a temporary replacement for a key person who has become disabled, replace lost revenue, fund the search for a replacement, and fund costs of training when a new person is found (3) Salary continuation is simply a plan to continue the salary of the disabled person (4) A buy-sell plan shifts the ownership of the company to one or more individuals The cost of the buy-sell can be paid in a lump sum or in installments 9 Social Security disability bene ts (see Topic 73)
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