PLAN FOR THE UNEXPECTED WITH ADVANCE DIRECTIVES AND DISABILITY INSURANCE
Estate planning has traditionally focused on minimizing estate taxes and directing the disposition of your assets after death. Yet, in today’s modern world, managing your affairs has become even more complicated as issues involving health care and personal finances, which can arise during your lifetime, have become increasingly more important.
Consider what would happen if you were to suffer a catastrophic illness or become incapable of managing your own affairs. This situation could occur either through a long, gradual process, such as a deteriorating medical condition or through a sudden and unexpected accident or illness.
If such an event were to happen, who would make your important legal, financial, and healthcare decisions? On what authority would this individual act? Fortunately, there are some estate planning tools called advance directives that can help in dealing with these contingencies.
LEGAL AND FINANCIAL DECISIONS
A durable power of attorney grants authority to another person to make legal and financial decisions on your behalf in the event of mental incapacity. The powers granted can be broad or limited in scope. Some decisions a durable power of attorney can assist you with include your personal finances, insurance policies, government benefits, estate plans, retirement plans, and business interests.
HEALTH CARE DECISIONS
In the area of healthcare decision-making, historically you may recall the Karen Ann Quinlan case. In 1979, the New Jersey Supreme Court granted permission to her family to disconnect Karen’s respirator, which her doctors believed was prolonging her life in a vegetative state. The case led to the enactment by various states of Natural Death Act Declarations (i.e., living wills).
A living will generally allows you to state your preferences prior to incompetency regarding the giving or withholding of life-sustaining medical treatment. In most states, you must have a “terminal condition,” be in a “persistent vegetative state,” or be “permanently unconscious” before life-support can be withdrawn. The definition of these terms and the medical conditions covered may vary from state to state.
A health care proxy allows you to appoint an agent to make health care decisions on your behalf in the event of incapacity. These medical decisions are not limited to those regarding artificial life-support.
Advance directives by a durable power of attorney, living will, or health care proxy are generally inexpensive, easy to implement, and should be considered essential estate planning tools for all individuals, regardless of age. In the absence of such documents, court intervention involving a great deal of time, expense, and possibly stress to your family, may be necessary to carry out your legal, financial, and healthcare wishes at precisely the moment when timeliness and ease of action are of the greatest importance.
If you’re employed by a large company, your employer may provide group disability income insurance. However, what if your company doesn’t provide disability benefits or you’re self-employed? In these cases, it’s up to you to make sure you’re covered.
One way of protecting yourself is by self-insuring or keeping a large savings account. However, even if you save 10% of your salary each year, one year of disability could wipe out years of savings! You may qualify to receive Social Security disability insurance if disabled. However, the amount of Social Security benefits you would most likely be entitled to is, in many cases, less than the amount that would be required to help you meet your regular bills and living expenses.
One smart method of protecting yourself from the financial implications of a sudden disability is to own an individual disability income insurance policy. Such a policy would pay you a “paycheck” each month—after an initial waiting period—if you became sick and couldn’t work.