The elder planning documents your clients must have

Editor’s note: To help CPAs meet the needs of older clients, the PFP Section has chosen to focus on elder planning as a thought leadership topic. This is the third in a series of articles about planning for life transitions following retirement featuring prominent CPA personal financial planners that will appear throughout 2016. To read other articles in the series, visit the PFP Section’s elder planning resource page.

It’s vital that your clients have certain documents in place to protect themselves and their assets in the event of their physical or mental incapacity. Clients must plan early and have documents such as wills and health care directives drafted and signed while they are healthy and able to discuss them with their families and advisers.

In the absence of these documents, families can be caught off guard. Take, for example, this example based on a real-life scenario: A woman who had never missed work in 35 years suffered a blood clot in her brain and had to be rushed to the hospital. She had been the one who had done all the paperwork for herself and her husband, and he had no idea where she kept the records or what her wishes were. She recovered slowly, but her speech and mobility were affected. The story underscores the importance of having essential documents in place.

It is not always easy to get clients to create or discuss documents like health care directives and powers of attorney, because doing so requires that they face their own mortality. “The challenge is to get clients to internalize that they need to get this done,” said Dirk Edwards, CPA, J.D., financial planner and owner of Edwards Consulting LLC. “If they want to accomplish their family goals and objectives, they need adequate documents that outline their wishes or the state will step in and take care of it for them.”

Here are the most crucial elder planning documents for your clients to have:

Records inventory

Taking inventory of all of a client’s assets and related documents is a critical part of elder and estate planning. “The most important document and the starting point for elder care planning is a record of what you own,” said Sidney Kess, CPA, J.D., of counsel to Kostelanetz & Fink LLP and senior consultant for Citrin Cooperman. “In the case of sudden death or disability with no records, it can take a family more than a year and cost them high attorney fees to try to reconstruct everything.” It is critically important that a spouse, friend, or family member knows where to find this information, and that more than one person has the information or access to it.

The records inventory should include the following information: where assets are; account numbers; passwords for electronic records; any recurring online sources and uses of funds, such as automatic withdrawals from a bank account; names and contact information for family members and beneficiaries; and where important documents are located, either online or on paper, including those for investments, real estate, insurance, medical history, taxes, marriage and divorce, doctors and advisers, guardians, business ventures, wills, trusts, and powers.

Kess suggested that CPAs help clients prepare a statement of records as a service. He said he advises clients to buy a book of records or access one for free online from sources like the AARP, and to start completing it today while they are in good physical and mental health.

Powers of attorney

A power of attorney appoints a person to act as an agent and make decisions for, or act in place of, someone else in a fiduciary capacity. “This is the most important document that everyone must have,” said Elizabeth Forspan, J.D., managing attorney of the law firm Ronald Fatoullah & Associates. “If you don’t have one and you become incapacitated, your family may be required to petition the court for guardianship, which is extremely costly and gives the court and attorneys the right to intervene and make ongoing decisions.”

Forspan noted that it is not expensive or time-consuming to create a power of attorney. Spouses should each have a separate one, she said. Note that powers of attorney vary by jurisdiction, so consult a local attorney to see what a power of attorney means in your client’s state.

Documents that specify your clients’ health care wishes

In most states, a power of attorney does not cover medical decisions, so your clients will also need to create documents that provide for making heath care treatment decisions in advance. These documents go by different names in different states. They may be called “advance health care directives,” “living wills,” “health care proxies,” or “medical directives.” Check with an attorney to determine how such documents are defined and what form they need to take in your client’s state. It is very important for clients who may have relocated or who live in several locations in retirement to talk with local counsel and make sure to have current documents that are effective in their specific jurisdictions.

A health care proxy designates an agent to make health care decisions only once a physician determines that a person is incapacitated and unable to make or communicate decisions. This power can include authorizing giving or withholding treatments or life-prolonging measures. A living will lists an individual’s wishes concerning medical care and treatment in extreme circumstances such as terminal illness. In some jurisdictions, the health care proxy and living will may be parts of the same document.

Without these documents, your clients may lose control over the medical decisions that are made on their behalf. If they don’t have a proxy, in some cases, the state they live in may designate who is to make decisions for them. Usually, this will be a close family member—but it may not be the person your clients would prefer. Advance directives can also give medical personnel a clearer legal and ethical basis for taking action should family members disagree on a course of treatment.

Wills and trusts

Your clients likely already know they need to have a will. However, they may neglect to update their will after any major change in their personal or business circumstances. They may also not realize that, if they move out of state, they may need a new will, as the wills they wrote in their former state can be interpreted differently in their new state of residence.

Clients may also assume they don’t need a will if they plan to leave everything to their spouse. Yet not all state laws guarantee that a spouse will receive all assets upon a spouse’s death in the absence of a will.

For greater flexibility and control, a trust agreement may be useful to achieve specific longer-term objectives; however, they are more complex and entail ongoing responsibilities. It is important to balance the potential benefits of a trust with the total cost.  

For more detail on powers of attorney, health care proxies, and living wills, PFP Section members can view this article by estate planning attorney Martin Shenkman. AICPA PFP Section members, inclusive of CPA/PFS credential holders, can access client-friendly resources on these topics in Forefield Advisor at the PFP Section home page.

Maria L. Murphy, CPA, is a Wilmington, N.C.-based freelance writer. To comment on this article, email Associate Editor Courtney Vien.