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 But if they're vague, incomplete, outdated or simply stashed in a drawer and forgotten, they may be worthless at best -- and, at worst, leave you vulnerable to abuse and exploitation.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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Living trust. Even if you've picked the most competent and trustworthy person to manage your finances, that doesn't mean he'll know what should be done with your property. That's where a living trust comes in. This document can provide detailed guidelines on how your property should be managed if you become incapacitated.

Here's how it works: You transfer your investments, real estate and other assets into the trust and name yourself as trustee, so you maintain control of the property. As long as you're mentally competent, you can revise or revoke the trust. You also name one or more "successor" trustees to manage the property if you become incapacitated and include detailed instructions on how the money should be used if you are hospitalized or need long-term care. Unlike a power of attorney document, the living trust remains in force after you die and allows the successor trustee to transfer your property to your beneficiaries without having to go through probate -- the cumbersome process in which a court oversees distribution of property left in a will.

If you have a living trust, you still need a financial power of attorney to manage transactions that may fall outside the scope of the trust, such as dealing with credit card accounts. And by naming different individuals as your living trust's successor trustee and as your agent under a power of attorney, you can help assure that neither person abuses his authority.

Health care advance directives. It's hard enough thinking about how your health care should be managed if you lose decision-making capacity. But ensuring your medical wishes are followed can be a bigger challenge -- even for seniors who have completed the two main types of advance directives: the durable power of attorney for health care and the living will.

A living will documents your wishes regarding life-sustaining treatment. Find living will forms for each state at www.caringinfo.org. Some states combine the living will with a health care power of attorney in one form.

The health care power of attorney allows you to appoint someone to make medical decisions for you if you become incapacitated. You always have the right to revoke the document while you're mentally competent. You also can include specific instructions on how your agent should make your health care decisions. But as with financial powers of attorney, laws governing these documents can vary from state to state. And as patients move among various facilities and health care providers, the documents can easily fall by the wayside.

Fortunately, some new tools can help. The American Bar Association's Commission on Law and Aging last year released a new health care power of attorney form that meets legal requirements in all but five states. The form also walks users through the process of choosing a qualified agent -- sometimes called a "health care proxy" -- and thinking about the guidance they should give that individual. The document, titled Giving Someone a Power of Attorney for Your Health Care, is available at www.americanbar.org.

Seniors looking to include more details in their advance directives might consider the Five Wishes form, which meets legal requirements in more than 40 states. The form, available at www.agingwithdignity.org, allows users to designate a health care proxy and outline the care they want under various medical scenarios.

Although seniors can prepare advance directives on their own, they may want to enlist the help of a lawyer if they're concerned about coordinating all their advance-planning documents -- and preventing conflicts. If your health care proxy and financial agent are different people, for example, your power of attorney documents might state that the financial agent must pay for anything that the health care proxy deems necessary, Frigon says. And although your health care power of attorney gives your proxy access to your medical information, lawyers also recommend completing a separate authorization under federal HIPAA privacy rules so that health care providers can freely share your medical information with certain other family members.

Finally, start talking. "Advance directive documents are only worth the discussions they're based on," says Charles Sabatino, director of the ABA's Commission on Law and Aging. Carol McNama, 54, of Terrebonne, Ore., discovered that when she served as health care proxy for her uncle. If it weren't for the detailed discussions he had with her, she says, she wouldn't have felt comfortable carrying out his wishes.

While hospitalized after suffering a massive heart attack, McNama says, her uncle told her repeatedly that he wanted to be removed from life support if he could no longer speak or move. A few weeks later, a stroke left him completely paralyzed and uncommunicative. When doctors said that he wouldn't recover, McNama decided to remove his life support. "That was the hardest call I've ever made in my life," she says. But thanks to her uncle's clear instructions, she says, "I know in my heart I did the right thing."

Keep the originals of your advance directives in a safe, easily accessible place. Don't put them in a safe-deposit box, where others may have trouble gaining access to them. Give copies to your health care agent, back-up agent, family members and doctors.

Even if your family and friends know what type of care you want, Sabatino says, often the advance directive "doesn't automatically follow you from place to place, provider to provider. It's up to the patient and family to make sure it stays central to the discussion, and that's really difficult to do" during a medical crisis.

A new system gaining momentum among states may help solve that problem. Physician Orders for Life-Sustaining Treatment, first introduced in Oregon in the early 1990s, are based on discussions between doctors and patients who are frequently hospitalized or have advanced chronic illness. After determining the type of care and quality of life that the patient desires, the provider notes those preferences in a standardized medical order. The brightly colored forms are placed at the top of your medical record, where it's the responsibility of health care providers to ensure they're accessible and up to date.

More than a dozen states have established POLST systems, and roughly 25 more are developing programs. To find out if the protocol has been established in your state, go to www.polst.org. A living will is "just what you hope your doctor will do," AARP's Hurme says, but "an order is an order."

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