Estate Planning for Disability

By Ward J. Wilsey, JD, LLM3655 Nobel Dr. Suite 345

San Diego, CA 92122(858) 764-2672

wardwilsey@wilseylaw.com

DisclaimerNothing contained in this presentation may

be relied upon as tax or legal adviceNo attorney client relationship is formed

through this presentation

What We Will Learn Why Disability Planning is Important Avenues for Disability Planning Coordinating the Living Trust with the Durable Power of

Attorney Defining Disability Who Gets Taken Care of during Disability Problems with Running a Business during Disability Disability for Insurance and Retirement Plans Long Term Care and Disability Insurance Health Care Issues in Disability

Why Disability Planning is ImportantDisability is becoming so common

Clients live longer6 times more likely to become incapacitated than

die in any given yearMake sure dependents are taken care of

KidsGrandkidsEmployeesCharity

Avoid Living ProbateConservatorshipPrevent Loss of Dignity and Control

Avenues for Disability PlanningLiving Probate (“Conservatorship”)

Court SupervisionLoss of Dignity and ControlVery Costly

WillWill cannot be submitted while livingUseless

Joint Tenancy or Tenancy in CommonRequires both signatures to workLiving Probate is Inevitable

Avenues for Disability PlanningDurable Power of Attorney

Allows agent to act for Disabled PersonAgency laws

Institutions are not required by law to recognizeBroad powers must be granted on low fiduciary

standardNo accountability

Living Probate required to challenge authorityLiving Trust

High fiduciary standardAccountabilityCannot deal with non-trust assets

IRAsLife Insurance

Coordinating the Living Trust with the Durable Power of AttorneyLiving Trust combined with Durable Power

of Attorney is best planLiving Trust for bulk of assets (better

document)Durable Power of Attorney for every thing

elseAssets that cannot be owned by trustPowers a Trustee cannot exercise

Defining DisabilityQuestion is how do we define when the Grantor is

disabled so Disability Trustee can take over trust assetsWorst way is “as defined by law”

Living ProbateA better way is upon the certification of two physicians

2nd physician is sometimes hard to get Reluctance due to liability concerns

Best is upon the Certification of Spouse and Physician or Disability PanelSpouse and physician for married couplesDisability Panel for single persons or persons with an

incapacitated or deceased spouse 3 persons who by majority vote declare the person to be

incapacitated This makes it easier to obtain a determination of disability allowing

the Disability Trustee to take over trust assets

Who Gets Taken Care of During DisabilityWho are the client’s beneficiaries?

Just the client?Client and spouse?Kids?Parents?Other?

In what priority should they be taken care of?This must be specified in the Trust document,

otherwise Trustee may not have authority to take care of dependents.

What types of gifts may be made?Ex. Does the trust allow you to make gifts to an

Irrevocable Life Insurance Trust?

Problems with Running a Business during DisabilityTrust vs. Durable Power of Attorney

Power of Attorney is just agentTrustee is actual owner of business

Bottom line is that a Trust will often be more effective for business owners in incapacity

Trust must be designed properly for S Corporations!

Disability for Insurance and Retirement PlansThe Retirement Plan or Insurance Policy will

have specific instructions related to disabilityQualified Retirement Plans (and often annuities)

cannot be owned by a Living Trust (income tax reasons)Durable POA is requiredProperly Drafted Trust may be Beneficiary

Surviving spouse should generally be Primary Beneficiary

Life Insurance should generally remain owned by clientTrust should usually be beneficiarySpouse should usually be contingent

Long Term Care and Disability InsuranceLong Term Care

Covers cost of long term care from disability due to age, illness or injury

Covers care at home or in skilled care facility such as a nursing home or a convalescent home

DisabilityIncome replacementUsually acquired prior to age 65Business or personal overhead insurance

The discussion with clients about disability planning should invariably lead to discussions about these insurance types

Health Care Planning for DisabilityDurable Power of Attorney for Health Care

Appoint person(s) to make health care decisionsCan also spell out what types of decisions

should be madeLiving Wills or Directives

Pull the Plug WillAllows the person to decide when to cease

using life sustaining measuresHIPPA

Allows medical providers to disclose information to agents listed in HIPPA authorization