Wood + Lamping - Mark Reckman - Estate Planning / Elder Law

SIMPLY MONEY   September 2024   WHAT ARE THE CAPACITY STANDARDS FOR   SIGNING LEGAL DOCUMENTS?  

ELDER LAW ATTORNEYS ARE OFTEN CALLED UPON TO DETERMINE IF A CLIENT HAS THE LEGAL CAPACITY TO SIGN CERTAIN DOCUMENTS. HOW DO THEY MAKE THAT CALL? WELL, THE TESTS ARE DIFFERENT FOR DIFFERENT THINGS. WHEN CONFRONTED BY THE PROSPECTS OF A GUARDIANSHIP, THE TEST IS IN THE STATUTE:

CAN A PERSON MANAGE HIS/HER AFFAIRS OR THE AFFAIRS OF A DEPENDENT?

THAT IS A VERY BROAD AND VAGUE TEST. THE COURT USUALLY LOOKS FOR CLUES THAT A PERSON IS AT RISK FOR PHYSICAL HARM OR FINANCIAL LOSS. THE COURT ALSO RELIES ON A PROFESSIONAL ASSESSMENT BY A DOCTOR OR MENTAL HEALTH PROFESSIONAL. THE LAW PRESUMES THAT WE ARE COMPETENT UNLESS PROVEN OTHERWISE BY CLEAR AND CONVINCING EVIDENCE. ONLY THE COURT CAN MAKE THAT LEGAL FINDING.

BUT THE TEST IS DIFFERENT FOR SIGNING DOCUMENTS.  

I.        SIGNING A WILL:

CALLED TESTAMENTARY CAPACITY.   THIS TEST REQUIRES THE PERSON SIGNING TO BE FREE OF DELUSION AND TO:
1.    UNDERSTAND THE NATURE OF HIS/HER PROPERTY

2.    UNDERSTAND HIS/HER RELATIONSHIP TO THOSE WHO WOULD BE HIS NATURAL BENEFICIARIES

3.    LEAVE HIS PROPERTY IN A MANNER CONSISTENT WITH 1 AND 2 ABOVE

4.    BE ABSENT OF UNDUE INFLUENCE  

II.   CAPACITY TO SIGN A CONTRACT  

1.    COMPREHENSION OF WHAT IS “GOING ON” IN THE TRANSACTION

2.    REASONABLE TERMS IN THE AGREEMENT  

3.    UNDERSTAND THE NATURE AND QUALITY OF THE CONSEQUENCES OF THE AGREEMENT

4.    ABSENCE OF UNDUE INFLUENCE  

III.   CAPACITY TO SIGN A POA. THE SIGNOR MUST:  

1.    KNOW AND TRUST THE AGENT  

2.    UNDERSTAND THAT HE/SHE IS GIVING THE AGENT THE POWER TO ACT IN HIS/HER STEAD

3.    BE ABSENT OF UNDUE INFLUENCE        

WHAT IS THE LAWYERS DUTY IN ALL THIS IS?:   
1.    TO CARRY OUT THE CLIENT’S WISHES  

2.    TO MAKE A REASONABLE INQUIRY INTO THE CLIENT’S CAPACITY
      

3.    TO MAKE A REASONABLE DETERMINATION ABOUT THE CLIENT’S CAPACITY

4.    TO DETERMINE THE ABSENCE OF UNDUE INFLUENCE.        


EVERYONE IS PRESUMED TO HAVE CAPACITY.         

Do I Need to File a Guardianship When My Disabled Child Turns 18?  

Parents of disabled children are often encouraged to consider a guardianship by a number of sources – school counselors, case managers, medical advisors, etc. The truth is that guardianships are not always needed.
I.         What is a Guardianship?   It is a court proceeding in which you ask the court to declare your child to be incompetent. A guardian takes over. Your child is stripped of the legal capacity to act for him or herself.

II.        There are Different Kinds of Guardianships.   Primarily two kinds:  
1.   Guardian of the Estate – Money management. If there is no money in the child’s name, no guardian of the estate is needed.
2.   Guardian of the Person – Health care and daily living.  

III.        Advantages of Guardianship.  
1.   It puts one person in full charge of all decisions.  
2.   It gives you authority to enforce your decisions.  
3.   It protects ward’s money/property.  
4.   It protects the ward and the guardian.

IV.        Disadvantages of a Guardianship.  
1.   Declaring your child incompetent can be demoralizing.  
2.   It costs $3,000 - $5,000 up front, and $1,500 to $2,500 every year – plus a bond in some cases. 3.   You need court approval to spend money (Guardianships of the Estate, only). That costs extra. 4.   You must take a lengthy class.  
5.   You must file reports.  

V.        Alternatives – Only Applies to the Cooperative and Highly Functional Disabled Child.
1.   Power of Attorney.  
2.   Living Will.  
3.   Power of Attorney for Health Care.  
4.   Joint Financial Accounts.  
5.   STABLE Account.  
6.   Trusts.  

VI.        So, do I need to file a guardianship at age 18? Not necessarily – if your child is cooperative and high functioning, try one or more less intrusive options first. You can always “default” to a guardianship, if needed.

THE AFTERLIFE OF YOUR FREQUENT FLYER MILES  

In a normal year, Americans rack up about 3 trillion frequent flyer miles. The average is about $622 per household per year. And travel experts are predicting that travel this year will exceed all previous years. What happens to those frequent flyer miles when we die?

Many airlines allow you to give your miles to your heirs – so do many hotel reward programs. There is often a fee - $50 - $100.

Neat idea – but also a pain in the neck – probably worthwhile but a pain nonetheless.  

How does it work?

You can do it in a Will. You can be specific or it will pass as a part of your residual estate. 
You can do it in a Trust.
You can do it in a beneficiary designation specific to those loyalty points.

To make the claim: 

Have a death certificate. 
Have the regular address and email address of the deceased. 
Have the account number and password of the deceased. 
Have your own account number and password.

Have the transfer documentation (assignment, Will or Trust)  
Then contact the airline – probably by phone – and be patient.  

Some airlines (Delta and American Airlines) will send you a packet to fill out. Some airlines (Southwest) simply do not allow transfers. 

Loyalty points are part of your taxable estate – so they should go on your estate tax return – if you file one. The hardest part is how to pick a value for them. I have never seen loyalty points on an inventory or on an estate tax return. The IRS has not adopted an enforcement plan relative to FFM.

Don’t take the first “No” as an answer – try again.

Tips to make things easy: 

Make a list of all your frequent flyer accounts and put it with your Will.  

Sign a document that says “When I die, I leave my frequent flyer miles in Delta Airlines Acct. #                                              to my wife, Jane Doe.  

Transfer those miles to your own account, if the plan allows. It is best to do that before death. But, you can log on as the deceased and do it that way – if you know the account number and password (and other security info).  

Some plans allow the owner to buy tickets for others. You can long on as the deceased and buy a ticket for yourself.    

Medicare and Medicaid are the same thing, right? They come as a package, right? Aren’t they the same?  

Well, while they both address medical costs, they are not a package and they are very different.  

  Back in the 1960s, when JFK was assassinated, he was succeeded by his VP – a Texan named Lynden Johnson. Johnson’s goal was to expand the social “safety net”. He called his program “The Great Society”.  

The Great Society had three main pillars:

1)    Expanded Social Security.
2)    Medicare – this was a new Federal program.
3)    Medicaid – this was a new State program funded with federal money.  

Medicare is federally subsidized health insurance. It was designed for folks who were otherwise uninsured. It covers everyone over 65 and disabled people of any age. There are no financial conditions – just age and disability. For example, Warren Buffet and Bill Gates are eligible for Medicare.  

Medicare covers doctor bills, hospital bills, and, if you elect, prescriptions. It is NOT comprehensive and many folks elect to buy additional coverage (called “gap filler” or Medi-gap policies, etc.) Medicare is pretty cheap – but the premiums are scaled such that higher income folks pay higher monthly premiums.

Premiums are very often deducted from your social security before you get your check.  

Medicare is funded and run by the federal government. They often hire private insurance companies to manage the claims and the paperwork.  

But, most of all, Medicare is health insurance and only pays for medical care – just like the health insurance you get from your employer.  

Medicaid is not the same. It is not health insurance. It is not run by the federal government. Medicaid is a welfare program – run by the state welfare departments. The federal government pays a big chunk of the cost but does not run the program. And, it is for poor folks only – you have to be broke to qualify to receive it. There are no premiums to pay. But, it is not the sort of thing to aspire to have. It’s something you “settle” for if you do not have a better choice.  

Initially, Medicaid was designed to pay for nursing home care. Not medical care – just room and board (which is NOT covered by Medicare). Called “custodial care”, it has expanded in many ways over the years and now offers benefits for disabled people living in the community. The purpose is to keep them out of a nursing home because that saves the government money and improves quality of life.  

Examples of what Medicaid will pay for now:

Treatment of substance abuse
Private duty nursing
Nursing home room and board
Assisted Care
Vision
Dental
Transportation
Family planning
Prescriptions  
   

Clearly, there is overlap between these programs. And there are folks who are eligible for both. This causes a lot of confusion and that is not going to change anytime soon. So, seek help when you need it. Do NOT rely on what you hear at the hairdresser or the barber shop. Call a Medicare specialist, a Medicaid professional or call Pro Seniors for help.

A study published by American Economic Review in 2021 found that 
most seniors in the U.S. have a person or agent in mind to take over their 
finances in the event of cognitive decline. 81% have a family member in mind 
and 19% have an institution or a professional in mind.
Here are the major challenges they found:

1) Not aware of one’s own decline;
2) Not wanting to give up control;
3) Agent is not aware of decline; and
4) Agent is not “available”.

Let’s talk about possible solutions:

1) Pick the right Agent. Agent must be:
a. trustworthy;
b. reliable;
c. “available” – which means they have both the time and the 
“right” temperament; and
d. young and relatively healthy.
2) The Agent does NOT need to be:
a. close by (although that helps);
b. a relative; or
c. a medical or financial expert.
3) Sign a financial POA and medical POA:
a. does not have to be the same person;
b. name a backup Agent;
c. “refresh” the financial POA every 3-5 years; and
d. avoid the “springing” POA.
4) When it is time to turn things over:
a. file POA in local county;
b. file a copy of the POA with every company you do business 
with – starting with the bank, broker and other financial 
institutions. The medical POA gets filed with each healthcare 
provider, doctor, hospital, and health insurance company.

When does the Agent “step in”? Depends on the individual. My parents 
had a division of labor that was typical of the WW II generation. Dad 
managed the money, and mom managed the house and the family. When 
dad got bad, my mother did not want to manage the finances. She was plenty 
smart – she was the valedictorian of her high school and nursing school. But 
she had NO interest in finances. So, she gave it up immediately. 
Other cases are very different. The Agent must look for clues like 
bounced checks, late tax returns, unopened mail, double payments, etc., 
then offer to help – gently. It will take more than one offer.

WHO SHOULD PURCHASE LONG-TERM CARE INSURANCE?

Buying long-term care insurance is one way to protect against the high cost 
of long-term care. However, this type of insurance may not be for everyone, 
so consider all your options. 
Long-term care – care in a nursing home or at home – may be paid for in 
four main ways:

1. Out-of-pocket. If you have sufficient resources, you can pay for 
your long-term care needs with money you have saved. 
2. Medicare. Medicare covers short-term nursing home stays after 
an illness or injury that require hospitalization. Medicare covers up 
to 100 days of “skilled nursing care” per illness. But, rarely do you 
get the full 100 days. Usually, it’s more like 20 days.
3. Medicaid. If you have limited resources, Medicaid will pay for 
nursing home care. In order to be eligible for Medicaid benefits an 
Ohio nursing home resident may have no more than $2,000 in 
“countable” assets (it may be higher in some states).
4. Long-term care insurance. With long-term care insurance, you 
pay monthly premiums to buy a policy that pays your long-term 
care costs if you are admitted to a nursing home or need home 
care (depending on the policy).

Determining whether you need long-term care insurance depends, in large 
part, on your financial situation. The cost of a long-term care insurance 

policy varies considerably, depending on your age when you purchase the 
policy, the benefit period, and the level of benefits, among other things. But 
the premiums are expensive. Therefore, if you have the resources to selfinsure your long-term care and still have money left over, you likely don’t 
need to buy a long-term care policy. On the other hand, if you cannot afford 
to pay monthly long-term care premiums, you will likely be able to qualify 
for Medicaid.
Another factor to consider is your family’s health history. A common reason 
for needing extended long-term care is dementia. If you know you have a 
family history of Alzheimer’s disease, for example, it may make more sense 
to buy insurance.
Of course, we never really know what the future may bring. Long-term care 
insurance is like any insurance policy: we don’t know if we will ever need it. 
In general, long-term care insurance is something to consider if:

1. You have the resources to pay the premiums, even in retirement;
2. You want to preserve your estate for your heirs; and
3. You don’t have enough money to self-insure. 

How much do you need to “self-insure”? That depends on your income and 
your marital status. If you are a single retired teacher with a good pension 
(more than $5,000/mo) then a million in investments is probably enough. If 
you are a married “1099er” with no pension, it would take more like three 
million. And, of course, if you have no children to leave your money to, that 
changes everything. 

LTC insurance is not for everyone. Folks with no resources cannot afford it 
and folks with substantial resources can self-insure. The folks in between 
need to look at this.
AARP has excellent material to help walk you through this decision without 
bias. Go to their website for more information or call there.