The emergence of COVID-19 has brought home the fear of becoming medically incapacitated, but planning for such an occurrence using advance directives should be part of any estate plan, even in a post-COVID-19 world.
Advance directives are documents and designations that help to see your wishes are carried out when you get to the point of no longer being able to make those decisions for yourself.
“These are documents pretty much anybody should have, no matter what your wealth level," says Liz Jacovino, wealth strategist with RBC Wealth Management -U.S.
Here, we break down what should be covered in your advance directive.
What is a financial power of attorney?
A financial power of attorney (POA) acts on your behalf in financial matters. It comes in two forms: durable and springing, and the type you choose should depend on a number of factors. A durable POA is effective as soon as the document is signed, and empowers the designate to make all financial decisions and conduct transactions on your behalf, while a springing POA only takes effect if you become incapacitated. Since the durable POA is valid from the moment it's signed, the key is to make sure the designate is someone you trust implicitly. An advantage of the durable POA compared to the springing POA is that the springing POA requires the holder to have proof the client has become incapacitated, which could cause delays in making critical decisions.
“The challenge comes up that you've been incapacitated but you need medical bills paid, or you need to have your mortgage, taxes, or utilities paid," says Robert Stern, wealth planning consultant at RBC Wealth Management-U.S. “I've got to get letters from doctors or some other qualifying event to be able to go to the bank and validate that you're incapacitated and therefore I now have the power to act on your behalf."
In the era of COVID-19, Stern sees a stronger argument for a durable POA, as social distancing could make the meetings necessary for triggering a springing POA more difficult.
Stern acknowledges that the durable POA comes with higher risks of abuse of that power. However, despite that, "it's a legitimate planning strategy," he says.
What is a healthcare power of attorney?
A healthcare power of attorney (HCPA) is similar to the financial POA, but designates someone to make healthcare decisions instead of financial decisions on your behalf. As with the financial POA, it's crucial to trust the person designated as HCPA, as that person will be making life or death decisions for you.
Typically, clients pick close family members to take on power of attorney roles. The same person can act as an HCPA and financial POA, but it often makes sense for the roles to be split, says Stern. For instance, if a close family member has a medical background and another works in the finance industry, it might make sense to split the roles along those lines. However, proximity also needs to be taken into account, as decisions might have to be made quickly if you become incapacitated.
What is a living will?
A living will specifies what treatments should be given or withheld in life-or-death situations after a person has become incapacitated. In a sense, the living will is the master document in the advance directives umbrella. It differs from a do-not-resuscitate (DNR) order in that the DNR order applies only to a specific situation, while a living will is more like a roadmap of what treatment plans you would or would not want.
“If you're not in a position to make those decisions for yourself, whether you're unconscious or otherwise unable to make those decisions, the living will spells out if you want feeding tubes, do you want medicine, do you want various treatments to keep you alive at a point where you're in a terminal position," says Stern.
The living will also works in concert with the powers of attorney, as it gives parameters that they must work within. This can take emotional pressure off the POA and HCPA, because it clearly outlines the client's wishes regarding medical treatments and intervention.
“It gives that person the peace of mind knowing those wishes can be carried out, and they're not the one that has to make that decision and carry that weight around on their own shoulders," says Stern.
Keep your estate plans up to date
You should work with your financial advisor to determine which advance directives may be right for your estate plan, but the directives themselves are set up with lawyers.
“We work with the client and their attorney, kind of in a hand-holding situation if you will. We send summaries to the attorneys if the client wants us to just say, 'these are things we discussed, these are the updates they'd like to make,'" says Jacovino.
Even with the documents in place, it's important to revisit them every few years to make sure your wishes haven't changed, and perhaps more importantly, to make sure that choices for financial and healthcare powers of attorney are still appropriate.
“Sometimes (a client may) name their parent 20 years ago, but now their parent is 90 years old and needs someone to take care of them," Jacovino says. "So they would no longer be a good choice for agent on your healthcare power of attorney."
Considerations across different states
The other reason to revisit the documents is that laws governing advance directives can differ by state. If you live in New York, for instance, but have begun wintering in Florida, the documents may need to be re-examined.
“Sometimes it makes sense just to freshen the date on them so they don't seem old and out of date," says Stern. “What's most important is that clients sit down with their attorneys, think through the issues involved, and really have a deep conversation about their family, the people they care about and who care about them, who they would entrust to make these really important decisions on their behalf if they're incapable of making them for themselves."
RBC Wealth Management does not provide tax or legal advice. We can work with your independent tax/legal advisor to help create a plan tailored to your specific needs.
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