Estate Planning for Diminished Capacity Call Audio Transcript October 28, 2015 Speakers: Sally Mullen Dave Gutzke Margaret Paddock Chief Fiduciary Officer Wealth Management Advisor Twin Cities Market Leader U.S. Bank Wealth Management The Private Client Reserve The Private Client Reserve Opening: This is a recording of the U.S. Bank Wealth Management Estate Planning for Diminished Capacity Call held on October 28, 2015. Sally Mullen: Hello and welcome to our discussion on Estate Planning for Diminished Capacity, hosted by U.S. Bank Wealth Management. I m Sally Mullen, Chief Fiduciary Officer for U.S. Bank Wealth Management. Joining me today is Margaret Paddock, the Twin Cities Market Leader for the Private Client Reserve of U.S. Bank and Dave Gutzke, Wealth Management Advisor in The Private Client Reserve. Investment products and services are: Important disclosures provided on page 11. 1
On today s call, the focus is going to be on what actions individuals can take before a major life event occurs. We ll provide you with some basic estate planning tips that can be implemented to help you safeguard your family s wealth. We ll also provide you with some examples about what you can do if your family is facing an unanticipated diminished capacity situation. Before we begin, it s important to define diminished capacity. In its simplest form capacity can be defined as the mental (or cognitive) ability to understand the nature and effects of one s acts. While we are focusing our talk today on dementia because of the potential impact and toll dementia can have on our society today and we will get to some staggering statistics in just a moment it s important to realize that cognitive decline comes in a variety of forms and from many different kinds of causes. Cognition is all about mental activities involved in basic tasks such as learning, remembering and problem solving. So the estate planning techniques and strategies we will cover today could potentially be helpful in many different kinds of situations. Our focus for this discussion is on cognitive decline and the significant impact it can have on not only the individual, but also his or her entire family from an estate planning perspective. We want to provide you with techniques, strategies and tools you can use to prepare for aging and to support your friends or family members as they seek to make appropriate financial decisions and trust in estate planning choices. Let s set some context for this discussion. David Laibson, a Professor of Economics at Harvard University, has studied the subject of the impact of aging on investment ability. His research focuses Important disclosures provided on page 11. 2
on macroeconomics, intertemporal choice, behavioral economics and neuroeconomics. In an interview published in Forbes called Aging and Investing the Risk of Cognitive Impairment in 2011, David Laibson notes there are two categories of intelligence that are critical to managing money. The first is fluid intelligence, which is our ability through life experience to accumulate knowledge and solve problems and crystallized intelligence which is our ability again through life experience to accumulate knowledge that helps us solve familiar problems. Laibson notes that as we get older we have more experience and more knowledge of the world and that helps us manage money except in the case of dementia. In our 50s, the decline in fluid intelligence becomes dominant and our overall ability to make sophisticated decisions begins a gentle decline. That means for many of us, we peek in our financial abilities in our 50s. By the time we re in her 80s, says Laibson our ability to make good decisions can be significantly compromised especially if the decisions we face involve complicated new problems. This is a natural part of aging. However some older adults will suffer a rapid deterioration in function due to a pathological process such as a stroke or Alzheimer s disease. Dementia impacts every aspect of intelligence. Laibson notes that the risk of dementia doubles every five years that we age. By the time we reach our 80s, the likelihood of having relatively severe dementia is about 20 percent. The risk of having some other form of significant cognitive decline will affect another 30 percent of us in our 80s. This means he says that the probability of cognitive impairment is so great that we need to begin to prepare for this possibility while we are still healthy and in our 60s if not earlier. Important disclosures provided on page 11. 3
Another article How to Protect and Help Clients with Diminished Capacity written by Sandra Adams, CFP and Peter Lichtenberg, ABPP published in the Journal of Financial Planning (2014) states that, older adults disproportionately have wealth; as a group they represent 13 percent of the current U.S. population but, hold 21 percent of the nation s wealth. This statistic from the National Institute on Aging underscores the opportunity and the need for increased financial planning services to older adults now and in the coming years. Many families do not have a set financial plan in place to deal with the issues that can arise when a loved one experiences a life altering event. The sooner that you can address the need for a solid estate plan the sooner you can move forward with confidence that you and your loved ones will be cared for if the unthinkable should happen. Although you may never become incapacitated due to an illness such as Alzheimer s or dementia, it s still important to complete your estate plan early while you are competent and can make appropriate decisions. There are four basic foundational pieces that should be included in any estate plan. First, planning should begin with designating a durable power of attorney for your health care and/or your financial decisions. A durable power of attorney enables you to appoint an agent, such as a trusted advisor, a relative, or friend, to handle specific health, legal and financial responsibilities on your behalf. Second, comes documenting your Health Care Directive and creating a Living Will. A Health Care Directive informs others of your wishes about your health Important disclosures provided on page 11. 4
care and allows you to name a person or agent to decide for you if you are unable to decide. In contrast a Living Will, also called a directive to physicians or advanced directive, is a document that lets people state their wishes for end-of-life medical care in case they become unable to communicate their decision. It has no power after death. These documents will help you address the following considerations: 1. Where would you like to live and receive treatment? For instance would you like to receive care at home, or in a specific assisted living facility? 2. Who do you trust to make financial and medical decisions for you? 3. How would you pay for your care? The third basic element in the estate plan is addressing who should inherit your assets upon your death through your Will and your beneficiary designations. Fourth, I encourage you to consider a Living Trust, also known as a Revocable Trust, where the trustee can act in the event of your incapacity. The trustee will distribute the assets upon your death in accordance with your instructions without a need for any court proceeding. I would now like to introduce Dave Gutzke. Dave has worked with clients in a wealth planning capacity for more than 20 years. He s going to share some basic strategies that clients can implement and best practices you should consider as you begin, or continue, your wealth planning journey. Dave? Dave Gutzke: Thank you Sally. You are right, as our population continues to age the need for sound estate planning becomes even more critical. Having a plan in place and sharing it with your team of trusted accounting, financial, legal and tax Important disclosures provided on page 11. 5
advisors along with your family is critical to ensuring your wishes are carried out in the event that you should become incapacitated. Even in the best circumstances there are a number of issues that may arise when a client is faced with his or her own cognitive decline or the decline of a significant other. The more prepared you are on the front end, the more confident you can be that your wishes will be carried out. Sally has covered many of the legal documents that you should have in place and I would like to consider the soft skills or items that are often overlooked but just as important to address. First, consider the family dynamics and establish role clarity especially regarding the Power of Attorney and Health Care Directive. Think more like an organization with a hierarchy. A lot of family members and friends may want to help provide input and may have various opinions but it is in the best interest of everyone involved to have a decision structure in place. Not everyone has the ability nor do they want to make tough decisions. These are challenging roles that can consume a lot of time. Also consider family counseling. Another point is to provide regular communication between involved parties but not excessive or over communication. Also seek other support beyond just financial guidance. I have found that a very good resource is an Alzheimer s Association where there are associations throughout the country. Their Web site is alz.org that s alz.org, they have a lot of good reference materials there as well as sources for local associations and plan for home health aides. Important disclosures provided on page 11. 6
It s important to give the primary caregiver a break even if they may not want a break, even if it s just for a few hours, while this person with a primary caregiver is going to the store or just taking a break. Also discuss your living environment. Remember a home might not be the best place to live. Also, develop a long term flexible plan. Last but not least document, document, document. This is important for all clients, but particularly for older clients, to have their financial lives organized and documented. Using a single document, either on paper or in electronic format, to capture advisor names and contact information, all financial accounts, policies, legal documents, medications, etc., can be helpful when or if the time comes when you cannot remember or communicate this information to others. Your appropriate advisor can assist you in completing such a document, can follow-up to make sure it is updated regularly, and can store a completed copy for you. Now let me briefly share a recent situation I worked through with a longtime client. My client was an astute, 62-year-old entrepreneur and an admired figure in his community. Fairly sudden, he couldn t remember things. He started to miss details of important meetings and conversations and soon couldn t recall even the names of family members. The onset of Alzheimer s hit the family hard, but they eventually pulled together and wrapped their arms around the diagnosis. Still, there were flareups with the children, all in their 20s, disagreeing about who should help the beloved family patriarch with financial and health care decisions. Establishing role clarity amongst the children and improving communication, results in better care for their father and stronger relationships between the children. Important disclosures provided on page 11. 7
Initially a diagnosis like this can almost be debilitating for some family members and often they need to work through the shock and adjust for what is the new normal. This really underscores the need for clients to keep their advisor involved. The better the advisor understands the client s situation the more support we can provide along the way. A few things that I encourage clients to talk with their advisors about are their: Family tree. Developing a family tree is a great way for the advisor to get to know the personalities of the family members. This document creates dialogue on family dynamics and will help us provide better advice. Discuss the various legal documents Discuss the personal financial statement Share a list of trusted advisors, such as who is your CPA, who is your attorney, who are your trusted friends Finally the investment policy statement. Every client should have a signed investment policy statement on file with his or her advisor. An investment policy statement should detail any important information that is significant to managing the clients personal investment portfolio including: o What is the target asset allocation o What is the risk tolerance o Timeframe for the investment or use of the assets o Goals for the assets o Liquidity needs o Account restrictions and preferences o Any special circumstances that might affect investments. Sally Mullen: Those are great tips Dave and you make a strong case for the value of developing a thorough and well thought out plan. In your experience, what are some of the consequences if planning does not occur before a client is in a state of cognitive decline? Important disclosures provided on page 11. 8
Dave Gutzke: That s a great question Sally, no one wants to talk about diminished capacity but it s a conversation many people and their advisors need to have if they want to be fully prepared for the potential risks. Individuals who haven t thought through what might await them not only face the threat of throwing their families into chaos but also risk putting their assets on the line by making themselves vulnerable to fraud, con artists and other financial predators. Worse, failing to plan for cognitive decline can lead to what many see as the nightmarish scenario of guardianship. Guardianship is where the individual s financial matters and health care are directed by a court appointed guardian or conservator. Family members may need to go to court, produce evidence of the individual s incapacity and ask the court to appoint a conservator or guardian to manage their estate. Oversight of all their financial affairs will be subject to court approval. After death, the estate will be administered in accordance with the individuals in state intestacy statutes. Unnecessary stress and expense would be incurred; and the ultimate disposition of the individual s assets might not be consistent with their wishes. Sally Mullen: Dave, you make a compelling case for thoughtful estate planning. Thank you for your insight. Thus far, much of our focus has been on cognitive decline among our aging population and the increasing likelihood that many of us are going to eventually be dealing with a family member that is experiencing a cognitive disorder. Obviously this can create a difficult situation; but as we ve discussed, it is a situation that proper upfront estate planning can help you manage. But what do you do when the unthinkable happens and a seemingly healthy family member is diagnosed with an untreatable brain disease in the prime of his or her life. How do you manage? Important disclosures provided on page 11. 9
I d like to introduce Margaret Paddock, who is going to share her personal story about her mother and how the impact of her mother s disease affected Margaret s family. Margaret? Margaret Paddock: Thank you Sally. Unfortunately our family story is not so unique. So many of us are dealing with a loved one with some form of dementia. My mother who was finally diagnosed with dementia at only age 53, was at the very early edge of the dementia age spectrum. Dementia as we know is an illness that affects the brain causing brain cells to die at a faster than normal rate. It is NOT normal aging. As we also know unfortunately, the mental ability of a person with dementia declines leading to symptoms such as failing memory, deterioration of intellectual function and personality changes certainly. My younger sister and I were my mother s only support system and neither of us were prepared. Due to her illness my mother lost her job and was then defrauded out of her entire life savings. Then she finally lost her home. Mom eventually moved in with me and my young family. I was only 30. My husband and I had two very young children. Because she had no long term care insurance, or means, we quickly learned about the mazes of Medicare and the cost of nursing homes which currently range from $55,000 to $255,000 per year depending on the state and facility. I learned about resources available such as in home nursing care and adult daycare centers, which is what I use so I could go to work every day. My mother has been in a nursing home now for over 15 years, just consider the cost of care for such a long term illness like dementia. My sister and I were not ready or prepared for this journey. Sally Mullen: Margaret that brings up a key point; obviously, you did not have the opportunity to address your mother s initial diagnosis and long term care needs before there was an issue. For clients that find themselves in a similar Important disclosures provided on page 11. 10
situation, what are the two or three things that you would recommend they address first? Margaret Paddock: Well unfortunately you re right Sally. My family was at a disadvantage and we were left scrambling trying to deal with how to care for mom. The most important thing I would suggest that clients do if they find themselves in a similar situation is what Dave said seek the advice of their trusted advisors and like I did is research the many supporting organizations available to help. It s interesting, even among the clients I work with that have funds to cover costs of long term care, there is still the case for careful, considerate upfront planning. By planning for the future and considering their wealth goals, clients can actively help safeguard and preserve their legacy. They are better able to see their dreams for meeting objectives such as charitable giving or passing their wealth down to future generations become a reality. These aspirations make a powerful case for proactive estate planning. Sally Mullen: Thank you Margaret and Dave for sharing these tips with us today. And thank you for joining us on this call. In closing we suggest that you connect with your wealth management advisor as well as your tax and legal advisors for additional information and resources on estate planning for diminished capacity. Investment Products and Services are: This information represents the opinion of U.S. Bank and is not intended to be a forecast of future events or a guarantee of future results. This information is not intended to serve as a recommendation or solicitation for the purchase or sale of any particular product or service. It does not constitute advice and is issued without regard to any particular objective or the financial situation of any particular individual. Important disclosures provided on page 11. 11
U.S. Bank and its representatives do not provide tax or legal advice. Each individual's tax and financial situation is unique. Individuals should consult their tax and/or legal advisor for advice and information concerning their particular situation. Important disclosures provided on page 11. 12