Planning for Life
Many people think of estate planning as only pertaining to what happens after a person dies. But in reality, a large portion of estate planning has to do with planning for incapacity. Should one spouse become incapacitated, it is imperative that the other spouse be able to administer the finances of the couple. This can be accomplished through a durable power of attorney and a revocable trust.
Revocable Living Trusts
A revocable trust can hold the couple’s assets. If one spouse contracts dementia or Alzheimer’s disease, the other spouse can continue to manage the assets under the terms of the trust. Sometimes, an incapacitated spouse may need assistance at home, in an assisted living facility, or in a skilled nursing home. The trust can be drafted in such a way to allow for planning to qualify for government assistance such as Long Term Care Medi-Cal and Veterans Aid and Attendance benefits in that eventuality. See the Medi-Cal planning page of our website for more information about this.
Durable Power of Attorney
If the well spouse attempts to contact the HR Department of the ill spouse’s former employer, the Social Security Administration, the IRS, a credit card company that issued a credit card to the ill spouse, or even a utility company where the account was set up by the ill spouse, the well spouse will usually find it impossible to talk to these agencies or companies. A durable power of attorney designates one spouse to make financial decisions for the other spouse if he or she is incapable of managing his or her financial affairs. The durable power of attorney provides access to these agencies and companies if the spouse becomes incapacitated. The durable power of attorney can appoint successor agents if the spouse cannot act due to death, disability, or any other reason. Typically most married couples appoint one or more of their children as successor agents. This is not always the best strategy, especially if the children lack financial maturity. In those cases, a friend, coworker, CPA, financial planner, or other trusted individual can be designated to serve as successor agent. If no trusted individuals exist, a professional fiduciary can be appointed to serve in this role.
Planning for Incapacity
To plan for the possibility of incapacity, each spouse can designate one or more trusted individuals to make healthcare and other personal decisions for him or her. This is most often the spouse, but it can be any person the spouse trusts. The type of decisions the health care agent will make include where the spouse lives, what church the spouse attends, whether care will be provided at home or in an assisted living facility or nursing home, whether the spouse will be buried or cremated, and whether heroic efforts will be made if the spouse is on life support.
It is important that these documents are created prior to being diagnosed with a mental incapacity. Even though most individuals still retain capacity when first diagnosed with dementia or Alzheimer’s disease, any planning done after such diagnosis is subject to attack by an individual seeking control over finances and healthcare decisions. Claims of lack of capacity and undue influence are rampant in today’s environment. Planning early in life will diminish the possibility of someone attacking your estate plan.
Protecting Your Spouse and Descendants
After the death of the first spouse, a continuing trust is typically created to care for the surviving spouse. This type of trust often has provisions for distribution of income to the surviving spouse, distribution of principal if needed to maintain the surviving spouse’s lifestyle, and sometimes to allow for withdrawal of some or all of the trust assets by the surviving spouse. On the other end of the spectrum, the continuing trust may not provide for direct access to the remaining trust assets by the surviving spouse. This might be done to create asset protection for the remaining trust assets from creditors of the surviving spouse.
Where there are children from other relationships, the trust can be drafted to distribute assets to the children while at the same time assuring that the surviving spouse lives in comfort. Any assets that remain after the surviving spouse’s death, would also be distributed to the deceased spouse’s children.
Sometimes there is concern that the surviving spouse may remarry or establish a relationship with a new partner and attempt to use the trust assets to benefit the new spouse or partner. If this is a concern, the continuing trust can be drafted to provide remarriage protections for the descendants of the deceased spouse.
Distribution at Death of the Surviving Spouse
Upon the surviving spouse’s death, the trustee will distribute the remaining trust assets among the designated beneficiaries. Most couples divide the assets among their living children and the descendants of any child that predeceased them. However, the couple can distribute the trust estate as they wish. They may wish to make gifts to friends and relatives. They may bypass the children and give the estate to grandchildren and great-grandchildren. Or they may donate some or all of their assets to charity upon the surviving spouse’s death.
As with the continuing trust for the spouse, the married couple may wish to provide divorce protection or creditor protection for their children and other descendants. This is accomplished through the use of trusts for the designated beneficiaries. You can learn more about providing divorce or asset protection for your children and grandchildren by clicking on this link. A child or grandchild may suffer from a disability that causes the child or grandchild to need government assistance. Usually, in situations such as that, an inheritance paid directly to the disabled child will cause that child to lose his or her government assistance. In such circumstances, using a special needs trust is required. You can learn more about special needs trusts by clicking on this link.
Estate Planning for Married Couples – A Complex Puzzle
Estate planning for married couples can be a complex puzzle. There are many decisions to be made about incapacity planning. A serious discussion must take place about who will manage your finances if you cannot do so. Decisions must be made regarding who you want to designate to make personal and healthcare decisions for you if you are incapable of doing so. You must determine what protections, if any, you want to provide for the surviving spouse. Where there are children from another relationship, you must decide whether protections for the children are necessary. A map of how your estate is to be distributed needs to be created and you again need to decide what protections, if any, you want to provide for your designated beneficiaries. This is complicated.
Our Southern California estate planning services for married couples are only a phone call away if you wish to schedule a consultation to discuss getting started on an initial estate plan, or updating an existing plan. Contact our Riverside office at 951-888-1460 or contact us online to learn more about how we can help.
Visit One of Our Southern California Locations
With office locations throughout Southern California, Sandoval Legacy Group, a Division of Holstrom, Block & Parke, offers representation for Estate Planning (LGBTQ estate planning), Special Needs Planning, Trust Administration, Probate, and Conservatorships in Riverside, San Bernardino, Orange, San Diego, and Los Angeles County.
