Financial Planning for End of Life
A: A few simple steps now will greatly ease many of the transitions you are likely to face in the coming years.
First, make sure your mother has her basic estate planning documents in place. At the very least, she should have a will and an Advance Health Care Directive. A trusted attorney can help make sure these documents fully reflect your mother’s desires. The California Attorney General’s website also has an excellent fill-in-the-blank Advance Health Care Directive form. The web address for the form is too long to include here, but a google search will take you right to it.
The Advance Health Care Directive allows your mother to do two things. First, it allows her to name a person to make health care decisions on her behalf should she become incapacitated. This decision making authority is known as a Power of Attorney for Health Care and the person receiving the authority is known as your mother’s agent.
Depending on how the form is written, the agent will have broad authority including the ability to consent to or refuse medical treatment, surgical procedures, and artificial nutrition or hydration. If your mother wants to place specific limitations on the power of attorney, I recommend getting an attorney to help you draft the document.
The form also allows your mother to leave instructions for her health care. For example, she can specify whether or not she wants to be resuscitated, have her life prolonged artificially, of if she wants treatment to alleviate pain even if it hastens her death. She can also specify if she wants to be an organ or tissue donor and for what purpose (transplant, therapy, research or education.) Again, if she wants to limit her instructions in any specific way, she should have an attorney draft her health care instructions.
Your mother may also want to establish a living trust if the value of her estate is greater than $150,000. Estates worth more than $150,000 will be subject to probate—a costly, lengthy and public process. Estates worth less than $150,000 can usually avoid probate.
When calculating the value of her estate, you can exclude several types of assets: real estate outside California; joint tenancy property; property that passes outright to a surviving spouse; assets that pass outside of probate to named beneficiaries (IRAs, retirement plans, etc.); multiple party accounts or pay on death accounts; any registered manufactured or mobile homes, or vehicles; any numbered vessel; or assets owned in trust, including a revocable trust.
While you are calculating the value of the estate, take time to do a full inventory of your mother’s various accounts, including where they are held and how they are titled. Carefully review the named beneficiaries on IRA’s, retirement plans, and life insurance policies. Sometimes, account beneficiaries are not properly updated as life’s circumstances change.
You may also want to have your mother name you as a joint owner on her checking account. Being a joint owner will allow you greater flexibility to settle outstanding obligations once she passes. Note that a financial power of attorney will not work in this case because it will lapse upon your mother’s death.
Be careful not to be named as a joint owner of a brokerage account—especially one with low cost basis investments. One of the great benefits of transferring wealth at death is the step-up in cost basis assets receive at time of death. Being named as the joint owner of an account will give you control over the assets in the account, but you will not receive a step up in basis when your mother passes.
Steven C. Merrell MBA, CFP®, AIF® is a Partner at Monterey Private Wealth, Inc., an independent wealth management firm in Monterey. He welcomes questions you may have concerning investments, taxes, retirement, or estate planning. Send your questions to: Steve Merrell, 2340 Garden Road Suite 202, Monterey, CA 93940 or email them to firstname.lastname@example.org.