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Take a Fresh Look at End of Life Plans

EDITOR'S NOTE: This article was originally published in the August 2012 issue of Kiplinger's Retirement Report. To subscribe, click here.

First, the good news: Many seniors planning ahead for their last years of life have a stack of documents outlining how their finances and health care should be managed if they become incapacitated.

Now the bad news: Those documents may not be worth the paper they're printed on.

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A slew of changes in state laws, along with shifting practices of financial institutions and health care providers, make it essential for seniors to take a fresh look at documents such as financial powers of attorney, living wills and health care proxies. Advance-planning documents can help ensure that all your financial and medical wishes are carried out to the letter. But if they're vague, incomplete, outdated or simply stashed in a drawer and forgotten, they may be worthless at best -- and, at worst, leave you vulnerable to abuse and exploitation. What's more, if you lose decision-making capacity and don't have the appropriate advance-planning documents, a court may step in and appoint a guardian for you -- an outcome that few seniors find desirable.


Considering the rate of cognitive decline among older adults, seniors who aren't planning ahead now are missing out on a critical opportunity to make their wishes known to loved ones, advisers and health care providers. About half of U.S. adults in their eighties and 75% of those 90 and older have some form of cognitive impairment, according to medical research.

Before you start buying forms from an office-supply store or downloading them from the Internet, consult a lawyer. Given variations in state law and individual circumstances, senior advocates say, it's well worth the modest amount of time and money required to have a lawyer help you draft documents that are tailored to your situation. Seniors who move to a new state or split their time among multiple states should also be sure to have a lawyer review their documents.

You'll also need to carefully select the individuals who will act as your decision-making agents. Be sure to have in-depth discussions with those people to help them understand your wishes. "Some people are perfectly trustworthy but can't balance a checkbook," says Gregory French, president of the National Academy of Elder Law Attorneys. "That's probably not who you want to name" to manage your finances.

Here's a look at some key considerations when preparing your advance-planning documents.

Power of attorney for finances. This legal document allows another person to manage your finances on your behalf, and it's a vital tool when planning for incapacity. Yet several recent trends are making it increasingly difficult for these documents to act as intended: the rising rate of elder abuse, financial institutions' reluctance to accept these documents and new state laws that change the way powers of attorney work.

Powers of attorney are easily abused. The documents often give the agent broad powers over a senior's assets, and there's little independent oversight to ensure that the money isn't misspent. If your agent steps out of bounds while you're incapacitated -- say, by making unauthorized gifts of your property -- the abuse may easily go undetected until you've died.

Naming a competent, trustworthy agent is paramount. Many seniors designate a family member for this task. While you're of sound mind, you can name a new agent or revoke the power of attorney completely for any reason. In addition, you can build in checks and balances to ensure your agent will do exactly what you want if you're incapacitated. You might require that the agent provide a periodic accounting to a third party, such as another relative or a lawyer, or that another individual sign off on any gifts of your property.

You also need to ensure that your agent can act as you intend. Banks and other financial institutions are raising more questions about powers of attorney, lawyers say, sometimes honoring only documents that were signed within the past couple of years and state the agent's authority to deal with specific accounts. "Sometimes you get a financial institution that almost totally frustrates the purpose of the power of attorney by raising all sorts of questions," French says. A bank may demand proof that an older power of attorney hasn't been revoked, he says. If the person who granted it is now incapacitated, "that's a real problem," he says.

To minimize such problems, seniors should show their bank, brokerage firm and other institutions their power of attorney document as soon as it's drafted and ask if it's acceptable, says Sally Hurme, an elder law attorney with AARP. Powers of attorney should clearly state the agent's authority to handle specific investment accounts, annuities and other assets -- details that aren't included in some off-the-shelf documents.

Paul Eckler, a retired chemist in Wildwood, Mo., discovered banks' growing scrutiny of powers of attorney the hard way. For several years he served as agent for his aunt, who held certificates of deposit at ten or so different banks. As each CD matured, she wanted Eckler to reinvest the cash in a new CD at the bank that was offering the highest rate. "It was far more complicated than we thought it was going to be," says Eckler, 66. "We ran into all kinds of troubles."

Transactions were delayed while bank lawyers reviewed the power of attorney, Eckler says. The lawyers demanded changes, resulting in his aunt's attorney making multiple revisions of the document. "Every bank has its own rules," Eckler says. Simple transactions that should have taken 20 minutes, he says, "took a month and three or four visits" to the bank.

Some lawyers like to spell out additional powers. Howard Krooks, an elder law attorney in Boca Raton, Fla., and Rye Brook, N.Y., says he might include the agent's authority to deal with Medicaid, the U.S. Department of Veterans Affairs and the Social Security Administration, "making sure there's a high degree of specificity regarding what the agent can do."

Changes in state law raise even more questions for seniors. More than a dozen states in recent years have enacted a new Uniform Power of Attorney law, which includes some fundamental changes in how these documents operate. The law says that unless otherwise indicated, a power of attorney is "durable" -- in other words, the agent's powers continue when the person creating the power of attorney becomes incapacitated. Previously, most state laws said that the agent's authority would end when the principal becomes incapacitated, unless the principal specifically set up a durable power of attorney. So it's advisable for seniors to double-check with a lawyer to ensure the language of the document matches their intentions.

The law also includes provisions aimed at preventing abuse. It makes the agent financially responsible for misuse of funds and requires that specific language be used if agents are given certain powers, such as making a gift or changing a beneficiary designation.

Although some seniors have traditionally relied on "springing" powers of attorney that take effect only when they become incapacitated, many lawyers say they're now trying to steer clear of these documents. When the document is actually needed, physicians must certify that the senior is incapacitated, causing delays and possible disagreement. If you're interested in using a springing power of attorney because you're concerned about your agent gaining control of your finances, "then you're naming the wrong agent," and should pick someone more trustworthy, says Bradley Frigon, an elder law attorney in Denver.

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