What Every Individual Needs in their Estate Plan, Part I: Planning for Incapacity
Edward A. Zurndorfer
What has happened over the past 15 months in the United States and throughout the world as a result of the COVID 19 pandemic has taught us a valuable lesson. We live in a new age of uncertainty. All of us need to be prepared for the unexpected. Every adult – this includes all federal employees and retirees and their adult relatives – needs an estate plan. In particular, every individual has to be concerned with making sure they have decision makers in place when they are incapacitated and immediately upon their death. Among other things, a proper estate plan will address who will make decisions about an incapacitated individual’s medical care, finances and potentially the distribution of their assets if they become totally incapacitated or die and cannot make those decisions.
Estate planning is by no means solely for “rich individuals”. An individual’s estate includes everything an individual owns. The estate can be of any size, which is why it can be worth taking the time to plan for what happens to it “just in case”. This is the first of two FEDZONE columns presenting estate planning for federal employees. This column will focus on estate planning for incapacity. Next week’s column will focus on estate planning post-mortem.
Estate planning for incapacity is the process of designating who will handle an individual’s responsibilities upon the individual’s incapacity. A proper estate plan can help establish a platform an individual can depend on as the individual’s personal and financial situations change. The key questions an individual must ask himself or herself: (1) How much will I be able to conduct my financial affairs in the event I become incapacitated, and (2) Who will make medical-oriented decisions concerning my health in the event I become incapacitated and no longer be able to make these decisions on my own.
There are three steps in the estate planning process for incapacity:
1. Making an inventory of one’s assets.
The purpose is to know what an individual owns in assets in order to plan for who will manage these assets in the event the individual becomes incapacitated. Both tangible and intangible assets are included. Tangible assets in the estate may include: (1) homes, land, or real estate; (2) vehicles including cars, trucks, motorcycles, or boats; (3) collectibles such as coins, art, antiques; and (4) other personal possessions. The Intangible assets in an estate may include: (1) checking and savings accounts; (2) stocks, bonds, and mutual funds; (3) life insurance policies; (4) retirement plans such as CSRS annuity, FERS annuity, TSP, and IRAs; (5) Health Savings Accounts; and (60 ownership in a business. Do not forget to include a list of digit assets. The internet has opened a world of possibilities to store personal data, to manage assets, and to gather and create digital content. Too often that data gets forgotten when it comes to estate planning and that can cause problems for family members and heirs. The result is that when an online account holder becomes incapacitated, family members can be blocked from financial documents related to banking or brokerages. It is therefore important to not forget to include digital assets as part of one’s estate plan.
2. Account and document one’s responsibilities to themselves and if applicable, to their family.
Ask these questions:
- If I am incapacitated and cannot work, how will my household bills be paid?
(b) If I am incapacitated and unable to perform family responsibilities such as the ones associated with child rearing, what measure will be adopted to substitute for those responsibilities?
(c) Who will manage my assets?
(d) In case I am incapacitated, do I have a plan for notifying my employer, bank, brokerages, and creditors? Perhaps I need to put a formal plan in place.
3. An estate plan for incapacity includes important legal directives drawn up by a qualified estate attorney.
A trust might be appropriate. With a living trust, an individual can designate portions of their estate to go to specific individuals or charities while they are alive. Upon the individual’s incapacity, a selected individual can take over.
(a) Durable power of attorney for healthcare. Designates decision makers who will make health-care decisions if an individual become incapacitated.
b) Living will. Directs the healthcare community regarding an individual’s desired care if they are incapacitated as a result of a sudden accident or an illness.
(c) Health Insurance Portability Accounting Act (HIPAA) authorization. Designates individuals who may be informed about an individual’s health issues by healthcare providers.
(d) Durable power of attorney for finances. Designates decision makers who will manage an individual’s financial affairs if the individual becomes incapacitated. The management of financial affairs includes the individual planning to pay the individual’s bills, managing the individual’s investments, and preparing and filing the individual’s federal and state income tax returns.
It is unfortunate that many young to middle-aged individuals do not have estate plans for incapacity in place. As the COVID-19 pandemic events over the past year has shown, a sudden and unexpected illness can result in a financial upheaval for an individual and family members. It is hoped that the information presented in this column will encourage all federal employees and annuitants to have an estate plan for incapacity in place.
Edward A. Zurndorfer is a CERTIFIED FINANCIAL PLANNER™ professional, Chartered Life Underwriter, Chartered Financial Consultant, Chartered Federal Employee Benefits Consultant, Certified Employees Benefits Specialist and IRS Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, and EZ Federal Benefits Seminars, located at 833 Bromley Street – Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer or EZ Accounting and Financial Services. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.
