[August 08, 2013]Dementia has become the No. 1
cause of disability globally, according to the World Health
Organization.
Stroke, which can also profoundly impair judgment and
decision-making, stands at No. 2.
"This year, 7.7 million new
cases of dementia will be diagnosed, and 15 million people will
suffer a stroke," says CPA Jim Kohles, chairman of RINA accountancy
corporation. "By the time dementia symptoms become apparent, their
competence may already be affected. Strokes, as we know, can be
tragically sudden."
While many people carefully plan for retirement and what will
become of their estate after death, too few provide for that middle
ground -- incapacity, adds attorney John Hartog of Hartog & Baer
Trust and Estate Law.
"We should plan for incapacity, and if it never comes into play,
that's wonderful," says wealth management adviser Haitham "Hutch"
Ashoo, CEO of Pillar Wealth Management.
Incapacity planning ensures you're able to speak for yourself in
all decisions, from your medical care to financial affairs.
Here are three steps everyone should take, from the accounting,
legal and financial perspectives:
Get disability insurance.
"The likelihood of something happening that affects your ability
to work is high, so you really should carry disability insurance,"
says accountant Jim Kohles.
How you pay for it can have different tax effects. If you
purchase it through your business, whether as owner or employee, you
can take a tax deduction on the premiums. But that means any claims
paid will be taxable. If you pay with post-tax dollars, any benefits
are not taxable.
"The difference in saving taxes on $200 a month in premiums
versus $5,000 a month in benefits is significant," Kohles says.
Kohles also cautions that more new policies now are capped at 10
years of payments -- not lifetime. So be sure you understand the
terms.
Have legal documents that clearly state your wishes.
These include a durable power of attorney for financial affairs
and an advanced health care directive for medical decisions, says
attorney Hartog.
Name the people -- the "agents" -- who will be responsible for
implementing those decisions, and draw up a document that delineates
their responsibilities and powers. Choose people in whom you have a
great deal of faith and trust.
"People need to remember they're going to be vulnerable -- you
don't want to pick someone if you have a quiver of doubt about
them," he says.
One safeguard is to name an agent and a second person to whom the
agent must report. "Just the idea that you have to report keeps
people honest," Hartog says.
In some states, the government provides forms so people can
prepare these documents themselves, although Hartog suggests at
least consulting with an attorney.
If you're the "non-financial" spouse, become familiar with the
financial plan.
"Typically, one spouse is in charge of the finances, and the
other takes a back seat, or even a no seat," says wealth management
adviser Ashoo. "The non-involved person needs to understand how the
finances are arranged and planned, and he or she needs to be very
comfortable with the family's advisers."
This will prevent a nightmare during an already stressful time
should the involved spouse suddenly become incapacitated.
Both spouses should attend meetings with the family's advisers,
even if one spouse doesn't fully understand or isn't interested in
all the details.
"If something happens, they will know who to call and what to
do," Ashoo says. "They'll avoid a nightmare. That's the peace of
mind I want for my clients."
All three experts stress the importance of having these
provisions in place long before you think you'll need them.
"Younger people have a higher chance of becoming disabled before
they die, and they're usually the people who haven't planned for
that at all," says Kohles.
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John Hartog is a partner at
Hartog & Baer Trust and Estate Law. He is a certified specialist
in estate planning, trust and probate law, and taxation law. Jim
Kohles is chairman of the board of
RINA accountancy corporation. He is a certified public
accountant specializing in business consulting, succession and
retirement planning, and insurance. Haitham "Hutch" Ashoo is the CEO
of Pillar Wealth Management LLC,
specializing in client-centered wealth management. All three are
based in Walnut Creek, Calif., and advise ultra-affluent families.
