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Money October 2013

Dollar Sense

A Just-in-case Plan if You Are Incapacitated

By Teresa Ambord

If this happens to you, you may have no say in what happens to your assets, your healthcare, and eventually you may not have your final wishes carried out (such as a do-not-resuscitate-order, or cremation as opposed to burial). While there is time, prepare an incapacity plan to get your affairs in order.

Many people plan ahead for what will happen after they die. Most, however, do not think about the possibility of being incapacitated. The truth is, becoming disabled and unable to speak for yourself is far more common than you might think, and you don’t have to be a senior. Statistics show among people from 45 to 65 there is a 50 percent chance of suffering a disability which lasts three months or more. The average disability lasts nearly 13 months, and one out of seven workers will suffer a disability which lasts five years or more.

The number one disabling disease is dementia, according to the World Health Organization (WHO). And by the time dementia symptoms become apparent, an individual’s competence may be severely impaired. The second most debilitating disease is stroke, which can occur without warning. Based on history, WHO estimates 7.7 new cases of dementia could arise in 2013, and 15 million individuals could be stroke victims this year.

If this happens to you, you may have no say in what happens to your assets, your healthcare, and eventually you may not have your final wishes carried out (such as a do-not-resuscitate-order, or cremation as opposed to burial). While there is time, prepare an incapacity plan to get your affairs in order. A good rule of thumb is, plan for the worst and hope for the best.

Here are three things you should do to prepare for the possibility of incapacity.

  1. Carry disability insurance. However, don’t buy this kind of coverage hastily. How you buy it affects the tax consequences to you. If you buy the insurance through your company (whether you are an employee or you own the business), the premiums should be tax deductible, subject to the usual limitations. However, if you deduct the premiums on your taxes, the benefits when received will be taxable. On the other hand, if you buy insurance with post-tax dollars, the benefits will be non-taxable.

    CPA Jim Kohles – chairman of the RINA Accountancy Corporation – advises his clients to carry disability insurance because, "The likelihood of something happening that affects your ability to work is high, so you really should carry disability insurance."

    Kohles tells his clients to talk to their own advisers and weigh which is better for you in tax terms. He tells them, "The difference in saving taxes on $200 a month in premiums versus $5,000 a month in benefits is significant." Also, note, new policies these days are often capped at ten years of payments. Buy disability insurance with the guidance of a qualified adviser.

  2. Make sure you have legal documents in place which clearly state your wishes. You need:

    • A durable power of attorney in place to care for your financial affairs.

    • And an advance health care directive for medical decisions.

    When you choose people to assign these roles to, don’t automatically choose your oldest child. Be sure the person is someone who will be responsible for implementing your decisions. Choose carefully, using people in whom you place a lot of trust. And then choose a second person who will be responsible for keeping the first person honest. Some states provide forms you can prepare on your own to make these decisions official, but experts suggest you should still at least consult an attorney.

  3. Are you the spouse who does not pay the bills or keep track of finances? Typically one spouse handles the bill paying. Often the other spouse doesn’t get involved other than a verbal discussion now and then, maybe not even that. Taking a backseat could land you in big trouble. If your spouse were to pass away suddenly or be unable to speak, would you know where the bills are? What bills are due and when? For bills paid online, do you know the passwords and accounts and due dates?

    This might be uncomfortable for both of you. But it could avoid a nightmare later, and give you peace of mind in the meantime. You should both meet with your financial advisers, even if one of you is not interested and has little or no understanding of the details. This way if something should happen, you will know who to call and what to do.

    Experts agree, incapacity planning is not merely important for baby boomers and their elders. It’s important for everyone. The greater your responsibility – children at home, a family dependent on your income, kids in college – the earlier you should have plans in place.

 

Don’t Think this Could Happen to You?

A close relative was only 60 when she woke up, last year, and realized she’d had a debilitating stroke. As a single woman and a very private person, nobody knew the details of her finances, how to pay her bills or what bills needed paying. She was still able to speak for herself, but was so overwhelmed by her situation that getting her to focus was difficult.

She was also self-employed. She did not qualify for state disability and had no disability insurance of her own. On the way to the hospital she told me pitifully that she thought she would one day just drop dead. The halfway point of being alive but disabled had never occurred to her.

In the end she lost everything, and now owes tens of thousands in unpaid medical bills, even after a substantial discount from the hospital.

Yes… this could certainly happen to you.

 

Teresa Ambord is a former accountant and Enrolled Agent with the IRS. Now she writes full time from her home, mostly for business, and about family when the inspiration strikes.

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