One reason many people fail to plan is that the future is so uncertain. You cannot know whether you will outlive your spouse – or your children. You cannot know whether those children will be able to help you – or how. You cannot know what help you will need or whether you will be able to pay for it or, if block grants replace the current Medicaid arrangement, even if a minimum of care will be available if you run out of money.
But you can improve your odds.
Three ways to plan for the future
1. You can take care of your health. It’s simple: if you want to live, live. Enjoy your body, whether that means gardening, going for long walks, square dancing or swimming. Eat fresh food, freshly prepared. Enjoy activities which stretch your mind and expand your social circle. If you want to live, live!
2. You can take care of your financial health. Would you rather live simply now and die with money in the bank or would you rather live it up now and not have money when you need it? Human beings are loss averse – but short-sighted.
3. You can protect yourself by having a retirement spending bucket and a retirement investment bucket. It may look big, but health and personal care costs rise over time. Much of the rise in health care costs is due to new technology. Much of the rise in personal care costs will be due to the shortage of people (let alone qualified, compassionate people) willing to work for $10/hour with no benefits.
How will you know when it is time to tap the retirement investment bucket? You won’t. The Rush University Medical Center in Chicago’s Memory and Aging found that we all experience a “terminal drop” in cognitive abilities three to four years before we die. This drop may not be obvious to you or to those who see you day to day and are used to accommodating to changes. Until recently, even dementia was thought to be a normal part of aging, not something medicine should address.
Durable [Financial] Power of Attorney
As with college or marriage or pregnancy or buying a house, the key is simply to plan ahead. If you have limited funds and trustworthy children or friends, you might sign a Durable [Financial] Power of Attorney to become effective now or when a doctor writes that you lack mental competency to manage your financial affairs. As the principal, the person granting the power, you can override the decision of your agent, the person you name. You can also revoke the Durable [Financial] Power of Attorney – but must contact every place it is likely to be presented. Without knowing that it has been revoked, others are entitled to rely on it.
Is this a good idea? It is now estimated that 70% of financial exploitation of seniors is perpetrated by family members, often acting under a Durable [Financial] Power of Attorney. It is such a serious problem that in 2017 the Texas state legislature voted to make it a 1st-degree felony. Steal your money: steal your life.
In addition, many banks and brokerages resist accepting a Durable [Financial] Power of Attorney. They may have their own form. They may request additional documentation.
They have much more experience with trusts, which have evolved for over 1000 years. (By contrast, general powers of attorney, as opposed to those affecting a specific piece of property, have been around for less than 100.)
You may want instead to create a revocable living trust, naming yourself as the trustee until a doctor writes that you are mentally incompetent to manage your financial affairs. This has the advantage of letting you build in provisions about what you want for your care. It has the disadvantage that money in the trust will be counted in determining financial eligibility for Medicaid.
Since Texas Medicaid only allows $60/month for personal needs and does not pay for everything, not even for all medical expenses, you may want some money to supplement it, however modestly.
An irrevocable trust, created more than 5 years (60 months) before you apply for Medicaid home health care or nursing home assistance, will not be counted in determining financial eligibility. You can be the beneficiary. But you cannot be the trustee. Are you willing to delegate? Giving up some control now could provide a much better life for you later.
Estate Planning attorney, Terry Garrett, is a member of the National Academy of Elder Law Attorneys and is active in the Texas and Austin Bar Associations. She graduated with honors from Cornell University. She was on the Dean’s List at Wharton Business School. She earned her J.D. at Columbia Law School, receiving the Parker Award and a Mellon Fellowship.
She assists families of people with special needs, people planning for the retirement years and people administering estates.