In my very first blog post on an estate planning topic, I come to you incredulous. Dumbfounded and upset that yet another family has to be put through the ringer because something so basic and simple was never completed. Neglected, forgotten, left on the back burner. However you say it, and estate planners like myself deal with procrastinators all the time, it usually results in difficulty for a family or worse.
I am upset because I just had a second potential client in two weeks come to me because an aging parent failed to complete basic estate planning and name an agent under a power of attorney. Every person in America needs 1. A General Durable Power of Attorney, 2. A Health Care Power of Attorney, 3. an Advance Directive (aka Living Will) for health care. These documents are needed no matter your net worth or station in life. At a basic level these documents allow you as the “POA Maker” (Principal) to name a trusted person to act for you (Agent). Thus, if you are in a car accident and cannot communicate or fall into a coma or develop severe dementia, someone can take care of your affairs both financially and health-wise.
In this case, I was meeting with the son and husband of a woman who just turned 70 who has developed dementia and perhaps Alzheimer’s Disease. A friend of mine who is a financial adviser approached me because her firm inherited the account, an Individual Retirement Account (IRA), and it is important for her to make certain choices regarding using those funds – specifically she is now about old enough to be required to make Required Minimum Distributions (RMDs) from that IRA. If she fails to do so, there will be serious income tax penalties.
To make a long story short, this woman has now developed dementia to the point where she cannot make choices or elections related to this IRA (or any other asset of hers for that matter). This leaves her in the untenable position of having money she needs for living, which she cannot use and which if she does not use she will suffer economic loss (tax).
Much to the chagrin of the family, after I administered a basic competency test, I informed them that the dementia appeared worse than they wanted to admit.
At this point it appears the only way to access the funds properly will be through having a court appoint a Guardian for her so that someone can act in her place to deal with this account.
The problem is that a Guardianship is a long and expensive proceeding in most people’s opinion – costing at least a few thousand dollars and spanning at least a few months even if everything is amicable and smooth.
This whole situation could have been avoided if she had, earlier in her life, executed a proper General Durable Power of Attorney – thereby naming family members (or friends) to act for her should she come to be in the state she is now in. This would have cost a fraction of the Guardianship proceeding.
I will be able to help her – I am confident of that – but it could have been so easily avoided if she had not procrastinated for so long.