A Well-Rounded Estate Plan Addresses Cognitive Decline

Estate planning is a roadmap for transferring a person’s assets upon their death. It preserves their value and lays out the distribution of assets to the beneficiaries. One overlooked but essential aspect of estate planning is a strategy to manage and maintain an estate’s assets if the owner loses cognitive functioning and cannot make sound decisions.  This is generally referred to as incapacity planning.

A recent case highlighted by Alan Feigenbaum in J.D. Supra’s article “Confronting Cognitive Abilities in Well-Rounded Estate Planning” reminds us of the complexities and challenges that can arise when cognitive decline is not adequately addressed in estate planning.

The case involves an 80-year-old retired advertising executive, referred to as K.K., who suffered from severe delusions. Influenced by a fraudulent business associate, K.K.’s delusions led to misguided investments that resulted in a significant financial loss. Despite the clear signs of cognitive impairment, K.K. continued to engage in financial decisions that jeopardized his estate’s financial well-being.

K.K.’s son filed a petition to appoint him guardian of his father’s estate to prevent further loss. This situation underscores the need for an estate plan that includes managing the assets and protecting the estate’s value, if the individual is cognitively or mentally impaired.

Key Takeaways

  • Plan Early and Consider Cognitive Decline: Begin estate planning early and include provisions to carry out plan directives, if cognitive functioning is impaired.  This may include purchasing long-term care insurance, or discussing your concerns with trusted loved ones who can watch for signs of decline.
  • Incorporate Safeguards: Estate plans should have safeguards, such as durable powers of attorney and trusts, which empower trusted individuals to manage your affairs if you become incapacitated.  It is also important to update these documents as you suspect decline, the issues in a simple estate plan when you are 30 are different than the issues in a plan considering cognitive decline in your 80’s.
  • Regular Reviews and Updates: Review and update your estate plan regularly to reflect changes in circumstances, including health status.
  • Professional Guidance is Key: Navigate the complexities of estate planning with an experienced estate planning attorney. An attorney will structure your estate plan to address potential cognitive decline.

Conclusion

K.K.’s court case underscores why a well-rounded estate plan includes a strategy to protect and manage assets when an individual lacks the cognitive capacity to make decisions. Proactive strategies prevent financial loss and reduce the emotional turmoil when caring for a cognitively impaired loved one. Estate planning gives you the peace of mind that your wishes will be honored, even in mental decline.

Reference: JD Supra, (March 2024), Confronting Cognitive Abilities in Well-Rounded Estate Planning

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Estate Planning Checklist for 2024

Estate planning is more than writing a will; it’s a plan to manage the legacy you want to pass to your loved ones.  It documents your healthcare preferences, prepares for aging and incapacity and conveys your assets to those you choose.   The National Council on Aging (NCOA) Adviser’s article, “Estate Planning Guide and Checklist for 2024,” offers an overview of what to consider when planning your estate.  There is no perfect checklist as all estate plans should be tailored to the individuals using them, and so what you may want or need could vary, but it’s certainly a good idea of what to consider.

So, this blog will cover an estate planning checklist for 2024.

Understanding Estate Planning

Estate planning organizes your affairs to fulfill your wishes after you pass away. It encompasses decisions about money, property, medical care and care for your beneficiaries. The process includes creating essential documents like wills, trusts, powers of attorney, medical documents and more.  Estate planning provides peace of mind that your wishes are known and respected, benefiting your loved ones, so it is important to consider all of the key documents in the estate planning checklist.

Key Documents in Estate Planning

  • Wills: A legal document that outlines how to distribute assets after your death.
  • Trusts: Contracts that allow a third party, or trustee, to hold property and other assets on behalf of a beneficiary.  These are used for many purposes depending on what kind of trust, such as tax planning or probate avoidance.
  • Powers of Attorney: Legal documents that grant someone else the authority to make decisions on your behalf, such as if you want to delegate to someone or because of your own incapacity.
  • Medical Documents: Documents that state your wishes regarding medical treatment when you cannot communicate your choices.  These, depending on your state, including documents like medical powers of attorney, directive to physicians (living will), HIPAA authorization or similar documents.
  • Disposition of Remains. Some states, such as Texas, have a standalone estate planning document that indicates what your final disposition wishes are, such as cremation or burial, and who is in charge of seeing that through. Other states work these concerns into existing documents.
  • Guardianship for Children.  This isn’t applicable to everyone, but if you have minor children you can name a guardian to care for them should you pass away.  This is often one of the main reasons why young couples even consider estate planning.

Key Takeaways

  • Common Estate Planning Documents: Wills, trusts, financial power of attorney and medical documents are fundamental to estate plans.
  • Everyone Needs a Will, but Consider a Trust: Regardless of the size of your estate, a will is crucial to fulfill your wishes.  What you do beyond that is dependent on your goals and situation, but always consider a trust.  People tend to assume a trust is only for the rich, but trusts are very versatile and help with many client concerns in a way that wills cannot.
  • Review Your Estate Plan Regularly: The original article says update your estate plan regularly, I say review it.  If you don’t review it regularly, it is easy to  forget the details, which makes the estate plan difficult to properly implement and even harder to update.  2024 is an excellent year to review because the estate tax thresholds are changing in 2026, exposing more clients to estate taxes than in the past.

Conclusion

Consider estate planning to be a critical process to protect your assets, provide for beneficiaries and have peace of mind for the future. Follow the estate planning checklist to create your personalized estate plan.

Reference: NCOA Adviser (Aug 21, 2023): Estate Planning Guide and Checklist for 2024.

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Estate Planning Mistakes

Making mistakes in your estate planning can torpedo your efforts to protect your family after you die, warns a recent article from Kiplinger, “Common Estate Planning Mistakes.” Everyone benefits from a professionally-made comprehensive estate plan, a process for preparing your legal and financial affairs so assets and possessions are passed on after your death to the people or charities you want.

Not having an estate plan can create trouble for those you love. The biggest estate planning mistake of all is not having an estate plan. After that, there are several others.

Procrastination. Suppose you unexpectedly become incapacitated and don’t have an estate plan. In that case, your family will be left guessing what you would want your medical care to be. They may have to go to court to apply for guardianship so they can pay your bills and keep your household running. Everyone should have documents like a Medical Power of Attorney, a Statutory Durable Power of Attorney (for handing financial matters), a HIPAA Release Form and a Directive to Physicians (Living Will) in place so that you can be taken care of in accordance with your wishes during your incapacity.

Trying to make an estate plan on your own. Unless you’re an experienced estate planning attorney, there’s a lot you could leave out if you attempt a DIY estate plan. If there are serious enough errors, a court could declare your will invalid and it’s as if you never had a will in the first place. The laws of Texas (or the state in which you live) will be used to distribute your assets. It may not be what you had in mind.

Keeping estate planning documents in a safe or safe deposit box. Documents need to be where someone can get them in an emergency or after your passing. Safety deposit boxes often require a court order to be opened on the death of the owner. Make sure that a person you trust (preferably the one you named in your estate planning documents to handle things for you in the event of death or incapacity) knows where these documents are located.

Missing key documents.  Make sure your estate plan includes these documents:

  • Living Trust or Will —This document outlines your final wishes and instructions for distributing your assets and how you want your affairs managed after you die. If you decide on a living trust, you will also need a “pourover will” to transfer assets to your trust at death if you did not take care of this during your lifetime. The Living Trust or Will also names a trustee or an executor to oversee the instructions you leave in the in the document.
  • Beneficiary designations—Any account allowing for beneficiaries, including IRAs, pension plans, investment accounts and insurance policies, will pass directly to named beneficiaries. Be sure that these are up to date.
  • Medical Power of Attorney —Allows another person to make medical decisions for you if you become incapacitated.
  • Funeral instructions—Do you want a traditional burial? Cremation? Leave written instructions for your family outlining your wishes for a funeral or memorial service.

Not Providing for Digital assets. These include websites, cloud storage, social media accounts and cryptocurrency, to name a few. By assigning a digital fiduciary and sharing key information, you help heirs locate assets and avoid identity theft.

Failing to update your plan. Life happens and things change. Someone you’ve named to handle your affairs after you’re gone may be deceased or too sick for the job. Your estate plan needs to reflect these changes in your life and in your family. What you wanted ten years ago may not be what you need now.

Appointing the wrong person as executor or trustee. Don’t feel obligated to name someone as executor or trustee because you don’t want to hurt their feelings. It’s much more important to name an organized person who can get along with the beneficiaries, communicate with them, and keep them informed. It’s also important to name successors in case the first person you name is unable to take on this role. For your peace of mind (and theirs), you should talk with this person before appointing them to this critical role to make sure they are willing to take it on.

Reference: Kiplinger (Dec. 30, 2023) “Common Estate Planning Mistakes”

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