Estate Planning For Disability


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The purpose of this presentation is to educate the public on importance of estate planning for disability, especially in California.

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Estate Planning For Disability

  1. 1. Estate Planning for Disability By Ward J. Wilsey, JD, LLM 3655 Nobel Dr. Suite 345 San Diego, CA 92122 (858) 764-2672 [email_address]
  2. 2. Disclaimer <ul><li>Nothing contained in this presentation may be relied upon as tax or legal advice </li></ul><ul><li>No attorney client relationship is formed through this presentation </li></ul>
  3. 3. What We Will Learn <ul><li>Why Disability Planning is Important </li></ul><ul><li>Avenues for Disability Planning </li></ul><ul><li>Coordinating the Living Trust with the Durable Power of Attorney </li></ul><ul><li>Defining Disability </li></ul><ul><li>Who Gets Taken Care of during Disability </li></ul><ul><li>Problems with Running a Business during Disability </li></ul><ul><li>Disability for Insurance and Retirement Plans </li></ul><ul><li>Long Term Care and Disability Insurance </li></ul><ul><li>Health Care Issues in Disability </li></ul>
  4. 4. Why Disability Planning is Important <ul><li>Disability is becoming so common </li></ul><ul><ul><li>Clients live longer </li></ul></ul><ul><ul><li>6 times more likely to become incapacitated than die in any given year </li></ul></ul><ul><li>Make sure dependents are taken care of </li></ul><ul><ul><li>Kids </li></ul></ul><ul><ul><li>Grandkids </li></ul></ul><ul><ul><li>Employees </li></ul></ul><ul><ul><li>Charity </li></ul></ul><ul><li>Avoid Living Probate </li></ul><ul><ul><li>Conservatorship </li></ul></ul><ul><ul><li>Prevent Loss of Dignity and Control </li></ul></ul>
  5. 5. Avenues for Disability Planning <ul><li>Living Probate (“Conservatorship”) </li></ul><ul><ul><li>Court Supervision </li></ul></ul><ul><ul><li>Loss of Dignity and Control </li></ul></ul><ul><ul><li>Very Costly </li></ul></ul><ul><li>Will </li></ul><ul><ul><li>Will cannot be submitted while living </li></ul></ul><ul><ul><li>Useless </li></ul></ul><ul><li>Joint Tenancy or Tenancy in Common </li></ul><ul><ul><li>Requires both signatures to work </li></ul></ul><ul><ul><li>Living Probate is Inevitable </li></ul></ul>
  6. 6. Avenues for Disability Planning <ul><li>Durable Power of Attorney </li></ul><ul><ul><li>Allows agent to act for Disabled Person </li></ul></ul><ul><ul><ul><li>Agency laws </li></ul></ul></ul><ul><ul><li>Institutions are not required by law to recognize </li></ul></ul><ul><ul><li>Broad powers must be granted on low fiduciary standard </li></ul></ul><ul><ul><li>No accountability </li></ul></ul><ul><ul><ul><li>Living Probate required to challenge authority </li></ul></ul></ul><ul><li>Living Trust </li></ul><ul><ul><li>High fiduciary standard </li></ul></ul><ul><ul><li>Accountability </li></ul></ul><ul><ul><li>Cannot deal with non-trust assets </li></ul></ul><ul><ul><ul><li>IRAs </li></ul></ul></ul><ul><ul><ul><li>Life Insurance </li></ul></ul></ul>
  7. 7. Coordinating the Living Trust with the Durable Power of Attorney <ul><li>Living Trust combined with Durable Power of Attorney is best plan </li></ul><ul><ul><li>Living Trust for bulk of assets (better document) </li></ul></ul><ul><ul><li>Durable Power of Attorney for every thing else </li></ul></ul><ul><ul><ul><li>Assets that cannot be owned by trust </li></ul></ul></ul><ul><ul><ul><li>Powers a Trustee cannot exercise </li></ul></ul></ul>
  8. 8. Defining Disability <ul><li>Question is how do we define when the Grantor is disabled so Disability Trustee can take over trust assets </li></ul><ul><li>Worst way is “as defined by law” </li></ul><ul><ul><li>Living Probate </li></ul></ul><ul><li>A better way is upon the certification of two physicians </li></ul><ul><ul><li>2 nd physician is sometimes hard to get </li></ul></ul><ul><ul><ul><li>Reluctance due to liability concerns </li></ul></ul></ul><ul><li>Best is upon the Certification of Spouse and Physician or Disability Panel </li></ul><ul><ul><li>Spouse and physician for married couples </li></ul></ul><ul><ul><li>Disability Panel for single persons or persons with an incapacitated or deceased spouse </li></ul></ul><ul><ul><ul><li>3 persons who by majority vote declare the person to be incapacitated </li></ul></ul></ul><ul><ul><ul><li>This makes it easier to obtain a determination of disability allowing the Disability Trustee to take over trust assets </li></ul></ul></ul>
  9. 9. Who Gets Taken Care of During Disability <ul><li>Who are the client’s beneficiaries? </li></ul><ul><ul><li>Just the client? </li></ul></ul><ul><ul><li>Client and spouse? </li></ul></ul><ul><ul><li>Kids? </li></ul></ul><ul><ul><li>Parents? </li></ul></ul><ul><ul><li>Other? </li></ul></ul><ul><li>In what priority should they be taken care of? </li></ul><ul><li>This must be specified in the Trust document, otherwise Trustee may not have authority to take care of dependents. </li></ul><ul><li>What types of gifts may be made? </li></ul><ul><ul><li>Ex. Does the trust allow you to make gifts to an Irrevocable Life Insurance Trust? </li></ul></ul>
  10. 10. Problems with Running a Business during Disability <ul><li>Trust vs. Durable Power of Attorney </li></ul><ul><ul><li>Power of Attorney is just agent </li></ul></ul><ul><ul><li>Trustee is actual owner of business </li></ul></ul><ul><li>Bottom line is that a Trust will often be more effective for business owners in incapacity </li></ul><ul><li>Trust must be designed properly for S Corporations! </li></ul>
  11. 11. Disability for Insurance and Retirement Plans <ul><li>The Retirement Plan or Insurance Policy will have specific instructions related to disability </li></ul><ul><li>Qualified Retirement Plans (and often annuities) cannot be owned by a Living Trust (income tax reasons) </li></ul><ul><ul><li>Durable POA is required </li></ul></ul><ul><ul><li>Properly Drafted Trust may be Beneficiary </li></ul></ul><ul><ul><ul><li>Surviving spouse should generally be Primary Beneficiary </li></ul></ul></ul><ul><li>Life Insurance should generally remain owned by client </li></ul><ul><ul><li>Trust should usually be beneficiary </li></ul></ul><ul><ul><li>Spouse should usually be contingent </li></ul></ul>
  12. 12. Long Term Care and Disability Insurance <ul><li>Long Term Care </li></ul><ul><ul><li>Covers cost of long term care from disability due to age, illness or injury </li></ul></ul><ul><ul><li>Covers care at home or in skilled care facility such as a nursing home or a convalescent home </li></ul></ul><ul><li>Disability </li></ul><ul><ul><li>Income replacement </li></ul></ul><ul><ul><li>Usually acquired prior to age 65 </li></ul></ul><ul><ul><li>Business or personal overhead insurance </li></ul></ul><ul><li>The discussion with clients about disability planning should invariably lead to discussions about these insurance types </li></ul>
  13. 13. Health Care Planning for Disability <ul><li>Durable Power of Attorney for Health Care </li></ul><ul><ul><li>Appoint person(s) to make health care decisions </li></ul></ul><ul><ul><li>Can also spell out what types of decisions should be made </li></ul></ul><ul><li>Living Wills or Directives </li></ul><ul><ul><li>Pull the Plug Will </li></ul></ul><ul><ul><li>Allows the person to decide when to cease using life sustaining measures </li></ul></ul><ul><li>HIPPA </li></ul><ul><ul><li>Allows medical providers to disclose information to agents listed in HIPPA authorization </li></ul></ul>