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Planning For Incapacity, At Any Age (Podcast)

Something Personal Episode 4: Planning For Incapacity, At Any Age

Something Personal logo.Senior client service manager Rebecca Pavese has a frank but sensitive conversation with host Amy Laburda about how to plan for times when you can't make your own decisions. Whether your incapacity is temporary or permanent, you may not be able to express your wishes for health care, handle your own financial obligations or decide who will take care of your children. While such scenarios are more common for older adults, Rebecca makes clear that it is just as critical for young adults to make decisions about what they want and who they want to carry out those wishes. Rebecca also covers a variety of legal and financial strategies individuals can use to empower their loved ones to offer help while knowing they are honoring the incapacitated person’s intentions.


About the Guest

thumbnail of Rebecca Pavese headshot. Rebecca Pavese, CPA, has worked extensively in Palisades Hudson's tax, financial accounting and estate planning and administration practices, and is a member of the firm’s investment committee. A senior client service manager with nearly 20 years of experience in that role, Rebecca first joined Palisades Hudson in 2000 as an associate in the firm's Northeast office and has been based in Atlanta since 2008. She is among the authors of the book Looking Ahead: Life, Family, Wealth and Business After 55, including Chapter 3, "Planning For Incapacity," the subject of this episode. For Rebecca's full biography, click here.

Episode Transcript (click arrow to expand)

Amy Laburda 00:11
Hello and welcome to “Something Personal,” the podcast where a team of financial planners share their expertise in planning for life's certainties and its uncertainties. I'm Amy Laburda, the editorial manager here at Palisades Hudson Financial Group. And today my guest is my colleague, Rebecca Pavese, a senior client service manager here. Thanks for being here today, Rebecca.

Rebecca Pavese
Hi, Amy. Thanks for having me today.

Amy Laburda
So Rebecca, today you get the job of making us think about something no one really wants to think about,

which is planning for our own incapacity.

Rebecca Pavese
Yes. While it's true that it's not the most fun thing to talk about, or think about, or plan for, it's so crucial and important to have this conversation, to plan for it, to discuss it with your family, to know what you're going to do in these situations should they unfortunately arise. And in some cases with aging, they are more likely than not going to arise.

Amy Laburda
So it's definitely something that's not a lot of fun to think about.

But what is the best time to start thinking and talking about this sort of planning, in your opinion?

Rebecca Pavese
Earlier is better. There's perfect planning and the planning that people actually do. The reality is you should think about these things and plan for them well ahead of the age where they're likely to happen. You need the documents in place for the situations where they could happen. That is actually where they're going to make the most difference. Think about things — there's estate planning that you do that you know it's going to happen, right? Everybody has a will. They know they're going to die. They know that they need to plan,

or I should say most people do, not everyone does, have a plan in place for how their wealth is gonna be distributed to their heirs, what they want their children to have. There's also estate planning and financial planning that you should do for the things that could happen. Think — the most obvious examples are why you choose guardians for your children, why you have term life insurance. God forbid you were to die while your children were still minors, you want someone to take care of them, you want to name that person, you don't want to leave it up to the courts.

You have term life insurance because if you left a young spouse or a young family, you would need that money in place, versus if you had saved your whole life and had set yourself up. Planning for incapacity can fall into that same thing. You want to have something in place should something happen to you, that people can take care of you. Think about, you know, probably one of the best known cases is the Terri Schiavo case. She was only 26 years old when she had her heart attack,

so that planning was not in place. And she didn't have a young family yet, so it's really rare that she would have that kind of planning in place. But it's an illustration of how young you can need this and why you would want it in place. Everyone has an opinion of what they want to happen in their health care and what they would want to do going forward. So that's why you would get something like that set up, late 20s, early 30s. Personally, when I did my first round of estate planning,

I had my girls in my late 20s. By 30, both of them had been born, and we did wills and life insurance trusts and all of that. We included at that time, we did both medical and financial power of attorneys.

Amy Laburda
Sure. I can also attest in my own family, there was a situation where a family member was incapacitated for some amount of time. And it was at that point that we realized a power of attorney would have been very helpful, but it had not already been set up.

Thankfully, they recovered, are fine now, and do in fact have a power of attorney in place for future reference but it's never the way you want to find out that it would have been nice to have one, unfortunately.

Rebecca Pavese
And in that situation, you were lucky in the sense they were able to recover and get that in place, because your hands are tied. If someone is incapacitated, you have no power, you are at the mercy of the courts and the law.

Amy Laburda
Absolutely. So, as you mentioned, most of us probably have some idea of what we want.

Some people are probably more inclined to have given it some thought than others. Step one, I assume, is talking with the people in your family about what those wishes are. But is just making your wishes clear verbally enough, or do you need to actually document them?

Rebecca Pavese
You need to document them. As in everything in life, it's really easy to have an opinion when you're just having a conversation, and you're like, “This is what I would do,” because you're making that decision under a perfect set of parameters. You're not emotionally involved,

and it's much easier to make decisions when you're not emotionally involved. And the reality is that's not how you have to make these decisions at the time that you're making a medical decision — your significant other, your child, your parent, they are going to be, if you're talking health care in a medical crisis and you're having to make a decision, what would they want? And it's much harder to say to follow what they told you they wanted than to be like, well, the paper says, “If I'm not going to recover, withdraw the feeding tube,”

where it's black and white. And you don't have to be like, “Well, what if, give me more time, I need a little more time.” So obviously with all written documents, you should talk to your family. Your family should have a clear understanding of your intention, but you also need to document it. And so for the health care, basically you can do it a few different ways. You have a living will that explains your wishes, it documents them and it may not include a DNR.

A DNR is a do not resuscitate. More likely than not, you're going to see those in the older. You're not going to have those in young power of attorneys or advanced directives. It gives you guidance on feeding tubes, palliative care, how long you want to be on life support, what are the thresholds. And people have different thresholds. People are like, “Oh, if they have to put me on life support, like take me off, pull the plug right away.” Where some people are like, “OK, pursue multiple options and then, you know, unplug me,”

which sounds very cold to say. But those are the real decisions that you're making. And having your family understand why you're making these decisions. We've seen clients have very different perspectives on how long they think, what they would want. Some people, if they're old and they say, “Hey, if I ever need a feeding tube, like that's — My quality of life has changed, I wanna be able to be on the golf course. I wanna be able to play with my grandkids. That's what I want. And if any circumstances change, that that would be

not the life I could live. I don't want to live in that state.” Where there's others that really want to stay on a long time and give hope to the medical community and see if they could find a way to get them better. Everyone has opinions on that, and they're personal, and they're important, and they're valid. That's why you need to make them known both in writing and then have the conversation with your family.

Amy Laburda
So as you point out, people have different thoughts on this and just sort of

being guided by “what I would want,” even for someone you love, is not always the best way. Unfortunately, though, for a living will, you can include a lot of specifics, but no one person can think of every possible medical situation that could arise. So in that case, do you want to determine someone who can make those decisions? And how can you decide who that person should be and what power they should have?

Rebecca Pavese
Yeah. So you're going to pick a health care proxy, and you're also going to name them in the document, because while you

describe in the document what you want, you still need someone to execute those decisions. So it's someone to execute the decisions that you've stated what you want, and then also to fill in the gaps for what is not on there that may happen. Take my family, for example, my parents have three daughters, and there are … My oldest sister would never be able to make that decision. And my parents could write it down, it could be black and white, my sister would never ever be able to unplug my parents should the need ever arise.

And that's who she is by personality. Whereas I'm a little more black — not that I don't love my parents just as much — but organized in a way that I could, you know, “This is what they want,” and be able to make that decision without feeling the guilt or or anxiety over making that decision. More so saying, “This is what they want. I'm in this industry, I know what it is

to make that decision.” And also maybe sometimes people have kids in the medical field and kids in finance. That's why you would likely choose your child that's in the medical field and that they're more in tune to that. What are the real consequences? What are the real hopes of future medical care? They are more educated to make that decision. Or, for example, I did not pick Bob, who is my husband, to make that decision. I chose my mother as my health care proxy,

because she was a nurse and she was young when I had these documents. And it's something that I may change now as my parents age, but she's passionate about it, she's well versed in it, she's worked in senior care most of her life. So that's why I chose her at that time when I was making the decision.

Amy Laburda
Obviously, a lot of people think of family, but it doesn't have to be a family member at all, does it?

Rebecca Pavese
It does not have to be a family member at all. It could be a friend, it could be… I mean, obviously it would be someone very important to you that knows you

very well, but it does not have to be a family member. And it could be a more remote family member. It could be a cousin or an aunt or uncle. Like it doesn't have to be an immediate line person.

Amy Laburda
So, if you hear people use the term medical power of attorney and health care proxy, are those two the same thing?

Rebecca Pavese
They are the same thing. It's just different language.

Amy Laburda
And what about compared to a legal power of attorney? How are those two different?

Rebecca Pavese
OK. So, a health care proxy,

a living will, they are totally separate than a financial power of attorney, or a legal power of attorney. They're doing something that's basically someone that has the power to pay your bills, to go to the lawyer to speak on your behalf, to sell your house on your behalf if they have a full power of appointment. You can limit things, and they could have different powers in them, but it's totally different, separate than a medical power of attorney. They are not connected. They don't have to be the same person and they accomplish very different things.

Amy Laburda 09:59
So you mentioned paying bills, selling houses. Are there any other reasons in particular — if you're incapacitated, obviously there are a lot of parts of your life you can't take care of. What sort of things are you expecting a legal or financial power of attorney to take care of for you?

Rebecca Pavese
Basically everything. A legal power of attorney is going to, for the most part, allow that person to make all the decisions that you are making.

It's going to take some effort to get this power recognized by different authorities, but once you have the document in place and the paperwork, you can basically act on behalf of that person.

Amy Laburda
So, you've given this person quite a lot of power. How soon do they get that power and how do they know when they have it?

Rebecca Pavese
So, there are two different kinds of power of attorneys: springing and durable. A springing power of attorney “springs” once a person is incapacitated.

A durable power of attorney is valid as soon as you sign it. So if that person has that document, they can take it, and they can have the power to make decisions on your behalf at that point, technically whether you're incapacitated or not. So people think, “Well, get a springing because I only want it to be used when I'm incapacitated.” That is not what people recommend and this is why:

It is very hard and very unclear to determine when a person is incapacitated. So you may have an aging parent who can't make these decisions anymore, and you go to the bank and you said, “Here, they're incapacitated. I'm the power of attorney. Can we do this?” And the bank is going to say, “No, this is not valid. They're not deemed incapacitated. You need proof from a doctor.” Doctors are sometimes hesitant. Sometimes you need two doctors. So

it's a process. And at that point, you want to move forward with something, typically, right? You're trying to use it. You have acted on this, and now you are at the mercy of getting someone to agree with you that your parents are incapacitated and you want to use this document. A durable power of attorney gives a person that same power initially. And so with a durable power, you can just let the person know. You could be like, “Hey, I have a power of attorney. I named you as the agent.

It's in my office in my bottom drawer, should you ever need it. Or I think you need to do something, I'll let you know. Come grab it and you can do it.” You have control over when that person has access. Obviously, this is a person you trust, so you're not worried they're going to then go sneak into your office and take your power of attorney.

Amy Laburda
Right, and I imagine there are also a lot of conditions where incapacity is not an on-off switch even for you, the person who has the power of attorney, right? So if someone has Alzheimer's or some other progressive disease,

it's easier to say, “Oh, I'm going to go ahead and take care of your bills for you,” while, you know, without actually litigating, “OK, what is the moment in time that you've gone from capable to incapable?”

Rebecca Pavese
Even in addition to that, not only — It's also you could be in a situation where someone's in an accident, and there is a very short time in which they're incapacitated, but they can't handle things. So you could use it during that time. As for the the non-black and white situation, where a parent is like, “Hey,

I am still capable of making these decisions and I want to, but I want help.” Sometimes parents just get fatigued. Or as people age they just don't care as much, or they don't want to exert as much effort into taking care of the mundane things. For bill paying and stuff like that, you could use this, the power of appointment, or you could hire a company, if a range is set up. But there's other things that you can't hire out, that you're going to need an agent for.

That's really a conversation and saying, “Hey, Mom and Dad, I can take care of this for you, but I'm not going to sell your house without your permission.” It kind of becomes organic, how it generates, but it's in place for those situations. And while it's not black and white, you usually see how that progresses.

Amy Laburda
So you set up a durable power of attorney with someone you trust. You've talked to them sort of about your plans for how you're picturing them using it, the kind of things it'll cover.

You mentioned telling them it was in a desk drawer somewhere in your home. Do you recommend keeping it in your home? Any place in particular? Any do-s or don't-s for where that durable power of attorney goes?

Rebecca Pavese
I recommend keeping it in your home in a safe spot. That could be in a safe, in your own home. What you don't want to do is keep it, for example, in a safe deposit box, because that becomes a circular problem. Because you then need the power of attorney to access the safe deposit box, which you can't get to.

So it would be a lot of red tape and a hassle. So you just want to keep it somewhere where they can access it. Or even have a copy with your attorney. And once they need it, they can call the attorney and say, “Hey, my mom needs me to use the power of attorney. Can I get a copy?” And then typically that can be verified, and that's a way to get a copy as well. But I do recommend keeping a copy somewhere safely in your home.

Amy Laburda
So that circles us sort of back to an earlier thing we were talking about, which is when you should set up these kinds of documents.

It sounds like obviously some people might have some hesitation with durable power of attorney because of the leeway it gives, but assuming you've picked someone you trust implicitly, how soon should you set this sort of thing up?

Rebecca Pavese
I recommend young. Once you start working and you have assets, if you're not married with children, that's a reason you're —

Something's going to have to happen to those should something happen to you. So you're gonna want something in place, someone to make those decisions. And then certainly as a young family, or someone that's married, you wanna have these documents in place. So it could be, you know, in your mid-twenties could be as early as you need these things. You very rarely see young people deal with financial planning. The biggest trigger is children, because it does become important to parents to choose guardians.

So that is usually an impetus to make other decisions. Once you're doing it, you'll kind of make all the decisions at one time. But don't let having children be the only thing that lets a young person get these documents in place.

Amy Laburda
Sure. We mentioned Terri Schiavo, which is obviously an outlier, but you do never know what can happen. So a note to any 25-year-olds listening to the podcast.

Rebecca Pavese
Yes. And for the young people, also get disability insurance. Young people need to look at disability insurance because they think, “Oh, if something happens to me,

I don't need life insurance. I don't need these other things, because I don't have a family. I don't have anything to take care of.” You need to consider what happens if you don't have the rest of your working life ahead of you, but you still need to live. That's what disability insurance covers. It covers the loss of income while you are still living.

There are certain ways you could become disabled that would allow you to continue to be employed, but will they let you be employed at the level of which you're currently employed? Or not employed at all? So, disability insurance. If a young person is going to make any kind of financial planning decision, that's what they should get. They should get disability insurance, because that's where they're most likely to see the need.

Amy Laburda
So, circling back to maybe some of our older listeners — or not, as we just discussed —

if you're thinking about incapacity, we've talked about a living will, we've talked about a legal power of attorney. What other sort of ducks do you want to get in a row when you're thinking about this sort of planning?

Rebecca Pavese
You just want your family to know your wishes. You want to know: “What's going to happen, should something happen to me? How am I going to live? Where do I want to live? Do I want to age in place? Do I want to have planning for assisted living?” You just think about the decisions that you're going to have to make, or your family is going to have to make, and

those are the things you want in place. You want everyone to know. And those are the non-black and white things. You're not going to put those on paper. But you're going to have a conversation and plan for what you want. And when you have these conversations, as you're aging and you're young and you're still active, it's easier for your families to agree on them or to understand them. Versus if you say them as it's getting close and then you have two children, let's say, that differ on what they think you should do.

Well, now they each have an opinion, and you've not clearly stated what you want. And now they're essentially fighting for what they think is best for you, which both may be great options. But you may have preferred one or the other, and you never told them. So now it's up to them, and you're not really in a place to clearly say what you want at that point.

Amy Laburda
I think one of the big things that we're sort of talking about with a spectrum of capacity is obviously people who are in good physical and mental health will

presumably want to live in their own space, whether a house or an apartment. And people who need full-time intensive care often will end up in some sort of facility, like a nursing home, that offers that full suite of medical attendance. But for people in between, are there things to be thinking about, about what your options are for living in those kinds of situations, whether it's in-home help, or facilities, or that sort of thing?

Rebecca Pavese
Yeah, there's lots of things. Obviously, there's wishes of what you think in a perfect world, but there's also: What can you afford?

How helpful are your children? Because it's one thing to say you want to stay at home, if you can afford some in-home care, but you're going to need your children to basically step up and help you. If they don't have the time or the desire or the ability to do it, then that's not a viable option. So there's a broad spectrum and you need to make sure that what you choose is actually a feasible option.

Amy Laburda
As a financial planner, if you're talking to a client who wants to make sure that there's resources available to support the choice they want to make,

what sort of things would you advise them for that setup?

Rebecca Pavese
You know, that's something that starts young, right? As you're saving and you're managing your wealth and you're investing and those are choices that people make. Should I give this money to my kids, or should I keep this money? Well, what are the options? What have you saved for? Do you have long-term care insurance? What is the expense going to look like? How old are you? At that point, you're looking at what their wealth can really provide for them. And also what they can actually — Is it safe for them to stay at home or not.

Amy Laburda 19:42
So say in a best case scenario, they've saved a nest egg, they've got the assets. How do you make sure that the people in your life who are carrying out your wishes have access to those assets, in a way that they can use them to take care of you or to see that you're taken care of?

Rebecca Pavese
So typically you're gonna put your assets, if you have significant wealth, you've put your assets in a revocable trust. A revocable trust is owned by you and will pass according to the terms of the trust. So you've

chosen how these assets are going to pass. You've named how the wealth is going to be distributed, whether it's to another trust at your death, whether it's outright to your children, whether it's to charity, you've named how those assets are going to pass. And you have complete control and you, the trust owns those assets. With a joint account, you own it with somebody else, and it is going to pass to them directly. Whoever that co-owner is in a joint account is going to get it. You have no say in that going to someone else. You can't own an account jointly with one of your children

and say, “Oh, but when I die, my share is going to go to the other child.” It is going to go to who the co-owner is on the account.

Amy Laburda
So in addition to a revocable trust, are there other ways to leave assets to people who might be participating and taking care of you?

Rebecca Pavese
Yes. You could have a joint tenancy account, which would pass with a right of survivorship. And you could choose the person that is the other person on that account.

Amy Laburda
So who typically would choose a joint tenancy as a structure for them?

Rebecca Pavese 21:04
Your most common example of a joint tenancy is going to be married couples or partnerships. You're going to see there are significant others on the account. It's just easier. You put money into a joint account, and you can both pay bills. Then you also see it as people will name a child, just to have the flexibility that they could write a check on their behalf or if there needs to be something paid, that person's in place just to sign the document or sign the check, pay bills, etc.

Amy Laburda
So since it passes directly to whoever else is on the account,

you're sort of bypassing what we call the probate system: what happens when you're administering a will typically. Do people often just do that to avoid probate outright or is that sort of a secondary thought?

Rebecca Pavese
Certainly with a joint account, that's just a secondary thought. It's really in place just to have an option for someone to write the check. One, because that account is going to pass outright to that person, it's typically one other person, you don't wanna pass a significant amount of wealth that way.

And while bypassing the probate system, it is not a huge asset in this account, it's just typically a checking account. It's not like this is where all your wealth is. While you could own other assets that way, in this situation we're talking about, in capacity, we're talking mostly about financial accounts, small accounts that way.

Amy Laburda
So designating a bunch of tenants of different generations just to avoid probate is not actually how you would advise people to use this account.

Rebecca Pavese
Yes. Joint bank accounts with a whole family is not

a way of financial planning. That is complicated. You'd have people writing checks, you wouldn't know, and they'd be fighting over it. That is not a way you would go for family wealth planning to pass probate. There's lots of other more efficient ways you could do that.

Amy Laburda
And I will save our listeners from getting too deep into that, because this is not actually our estate planning episode, but we'll come back to it on another day. Staying with incapacity planning, are there any other preparations you advise your clients to make for this sort of thing?

Rebecca Pavese 22:56
You want your family to know what your plans are, obviously, the documents, the things we've talked about already. But all your financial planning documents, you want them to know what they say, where they are, who they can contact. You've likely assembled a team of financial planners and lawyers. You want your family to know who those people are, who can they ask if you're incapacitated, to deal with financial questions or help. Or know like, “Hey, do I need to do this? Are you taking care of it?” And also now we're in an age where

even elderly people are doing a lot of things online. And a lot of people, though I don't advise it, save their passwords in the system. But if they don't, or you don't even have access to their computer, how do you access these accounts? Where are their passwords? So we recommend in some way, either in a protected document online, or in pen and paper in your safe, having a way for families to know how to access: What are your passwords? How can they access these accounts? And obviously for young people, it's so common, but

get your Social Security, get all your pension payments, make sure everything's being direct deposited. Set up as much as you can to be automatically paid out of your checking account. Those are transitions that you can make to help ease that burden.

Amy Laburda
Yeah. I know, I'm certainly not alone: A lot of people don't live especially near their parents geographically. So I think those kinds of conversations can also just give you some peace of mind, that you don't have to immediately jump on a plane,

depending on what the problem is.

Rebecca Pavese
Exactly. There are some things you can handle from a distance. And we do that for clients. Just as small a thing as bill pay. We're not in there. We're not getting their bills. We're not sitting in there, receiving their mail daily. But we have figured out a process to — How do we help them? How do we pay their bills? And we're doing it from remote offices.

Amy Laburda
So some of the incapacity planning we're talking about is actually relatively simple. Not all of them require making an appointment with your lawyer, which is

really helpful for those of us who need to get started on it sooner than later. Some of them are things you can just do in an afternoon at home, it sounds like.

Rebecca Pavese
Yes, exactly. It's like, “Oh, God forbid something happened to me. How would people get access to this information?” And putting that in place.

Amy Laburda
So whether you're 25 or 55, definitely good things to keep in mind.

Rebecca Pavese

Amy Laburda
Rebecca, thank you so much for coming on the show today. Did you have anything else you wanted to discuss that we didn't touch on?

Rebecca Pavese 25:11
I don't have anything else to add today, but I appreciate the opportunity to have this conversation with you. And if there's anybody out there that we could help, please give us a call. We'd be happy to have a conversation and work these through with you.

Amy Laburda
Thanks, Rebecca. Great talking to you.

“Something Personal” is a production of Palisades Hudson Financial Group, a financial planning and investment firm headquartered in South Florida. Our other offices are in Atlanta, Austin, the Portland, Oregon metropolitan area, and the New York City metro area. “Something Personal” is hosted by me, Amy Laburda. Our producers are Ali Elkin and Joseph Ranghelli. Joseph Ranghelli is also our director, editor, and mixer. Our firm has written two books,

Looking Ahead, Life, Family, Wealth, and Business After 55, and The High Achiever's Guide to Wealth, which offers advice for younger professionals, entrepreneurs, athletes, and performers. Both books are available on Amazon, in paperback and as e-books.