Having a plan for disability can protect you and your resources when you no longer can. According to a recent article from the Social Security Administration, the probability of disability before the normal retirement age for a 20-year-old in 2020 is 25.3%.
In contrast, the article reports that the same 20-year-old dies before the normal retirement age is 9.8% for men and 7.4% for women.
Therefore, having a plan for disability is arguably even more important than having a will. As an Estate Planning attorney in Austin, Tx, I help clients achieve their life and legacy goals by empowering them to seize control of their plan for disability.
Concerning the passing off of control of your finances, you should consider several options to assist your loved ones if you are disabled. First, you should consider disability insurance. Second, having a Power of Attorney in place, whether Durable or Springing, can protect your finances. You should consider including so-called "hot powers" in your Power of Attorney if you are a spouse, partner, loved one, or friend you trust. Finally, a Revocable Living Trust provides you with the most protection but requires some administrative work on the front-end.
Regarding your medical care, you should consider putting in place a Medical Power of Attorney, a Directive to Physicians and Family/Surrogates, a HIPPA (Health Insurance Portability and Accountability Act) Release, and possibly a Designation of Agent for Disposition of Remains and a DNR (Do Not Resuscitate). I will cover these documents in a subsequent post.
This post focuses on controlling your finances in your plan for disability.
If you face sudden disablement, you may become unable to handle your financial affairs. If you do not have a plan in place, a court will decide who will make financial decisions on your behalf. The court may appoint someone you don't even know to fill this role. (This brings to mind the recent film I care a lot with Rosamund Pike.) Perhaps even more troubling for some, the court may appoint someone you do know and love, but don't necessarily want in a position to control your finances.
In any event, a court proceeding will lead to delays and costs that you can avoid with planning before you become disabled.
The statistics referenced at the beginning of this post indicating that a 20-year-old is almost 3 times more likely to become disabled before their normal retirement date than die, should alert you to the importance of disability insurance. Given the odds in either eventuality, you should probably prioritize getting disability insurance over life insurance first. But you should definitely get both. (Incidentally, as part of a comprehensive wealth plan, I can assist you with determining your need for life insurance. I have no financial interest in a particular product or company. I will give you an unbiased recommendation based on your individual circumstances in your best interest)
Your plan for disability should include disability insurance. Many employers offer it as a benefit that they deduct from your paycheque. It is likely pretty cheap. However, you should consider getting supplemental or even separate disability insurance on your own. Doing so frees you from your employer. As you age disability insurance becomes more expensive. Perhaps you will separate from your employer at some point either voluntarily or involuntarily. You may then pursue employment on your own, or at a company that doesn't offer this disability insurance. In that case, you roll the dice if you don't buy insurance on your own. But, it may be prohibitively expensive at that point.
For brevity, I will move on. If you require further information, a good place to start with your research is this AARP post. For now, my final recommendation is that you shop around, and look into only long-term disability insurance that covers 60-70% of your income.
A Power of Attorney provides you with the opportunity to appoint someone on your own to handle your financial affairs when you cannot. This is a powerful tool to help you efficiently plan for disability. A Durable Power of Attorney goes into effect upon execution. A Springing Power of Attorney "springs" into force upon the predetermined criteria that you set forth in the document. The inclusion of so-called "hot powers" can greatly enhance the ability of your agent to plan your finances efficiently.
Mais, "Ils doivent envisager qu’une grande responsabilité est la suite inséparable d’un grand pouvoir": But, with great power comes great responsibility.
So be careful to whom you assign those hot powers.
Despite the name of the document, you don't have to appoint an attorney. Rather, you can appoint anyone you want to act as your agent to handle your financial affairs on your behalf. Just think agent, when you appoint someone as your "power of attorney."
As mentioned above, the Durable Power of Attorney goes into effect upon execution. The presumption is that you will execute the document, but that your agent will not exercise their powers until the need arises.
If you execute a Durable Power of Attorney as part of your plan for disability but keep it in a safe, or safety deposit box - your agent may not have the ability to access the document. Without access to the document, they will not have the power to act on your behalf to handle your financial affairs. So, a court would likely appoint someone - perhaps your designated agent, perhaps someone else.
You may hesitate to execute a Durable Power of Attorney because you may find the idea that someone could legally act on your behalf without your knowledge troubling.
In that case, you may want to consider a Springing Power of Attorney. The authority you grant to your agent would not go into effect until some predetermined event that you set out in the document.
For instance, you could require the judgment of two medical doctors to determine that you have a disability that prevents you from effectively handling your own financial affairs. Upon that determination, your agent would gain the designated powers.
Further, the document could withdraw that power from your agent with a similar judgment by two medical doctors that you have recovered from your prior disability.
You may consider adding "hot powers" to your Power of Attorney. These powers increase the flexibility of your agent to make decisions when you are disabled. For instance, if the federal gift lifetime exemption falls from the current level of $11.7m during your disability, with specific hot powers, your agent could act on your behalf to reduce your potential tax exposure.
Some examples of hot powers include providing the agent with the power to:
You do not want to flippantly include these powers in your Power of Attorney. You want to carefully consider the need for each, and understand their potential effects. Also, you want to have full confidence in your agent and potential successor agents. With these hot powers, they could effectively alter your estate plan significantly.
Finally, you may consider creating a Revocable Living Trust as part of your planning for disability. Prior to a disability, you would occupy the roles of grantor, trustee, and beneficiary of the trust. In the event of disability, you would appoint in the trust document a successor trustee to handle your financial affairs.
To make this work, you would have to fund the trust with the assets that you want your successor trustee to control on your behalf. This would require some front-end legwork on your part. Assets that you do not fund into the trust, your successor trustee cannot control.
You could appoint another agent in a Springing Power of Attorney to fund property outside of the trust into the trust. This would serve as a check by distributing powers among trusted individuals.
As a further check on the power of your successor trustee, you could also appoint a co-trustee. I would recommend a corporate trustee as a co-trustee. They will further ensure compliance with applicable laws requiring that your trustees act in your interest as a beneficiary. However, corporate trustees are expensive. So, you will want to balance the size of the trust with your desire for further protection.
As an Estate Planning attorney in Austin, Tx, I help clients achieve their life and legacy planning goals. To assist you in planning for disability, and also for a stronger financial future, I recommend that you check out the resources section of my website.
In particular, you could explore your financial potential.
Or, you could request the FREE report: The Readiness is All. You will find some important advice that you can implement immediately in that report to improve your retirement savings.
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