The concept of aging positively means knowing that you, your family and your wealth is protected. It refers to the idea that seniors should be able to enjoy their golden years without the worries and concerns that often come with aging.
Families often rush to design and implement a plan when facing crisis situation, such as when a senior family member is facing an emergent admission to a residential long-term care facility and nothing had previously been done to prepare for such an event. Invariably, the elder family member – and sometime his or her children – is stuck paying more out of pocket for long-term care, leaving little if any savings to pay for additional comfort items or necessities or to leave as a legacy for the next generation.
Business owners in these situations must make decisions about the continuation of their business without the benefit of having a proper succession plan in place; and sometimes, if the business owner has lost capacity to manage their affairs, such decisions are left to someone else. Crisis planning is stressful to the family and the cause of tremendous anxiety. Careful planning can help prevent these types of situations.
When to plan
There’s no time like the present. Waiting until the eve of needing long-term care limits the available planning techniques.
The time to plan should be when you are healthy and competent to make informed and educated decisions about the continuation of your business and paying for long-term care and the various strategies available to put you in the best position to do both.
Avoiding delay is even more critical now. A variety of significant tax proposals have been introduced this year that may have tremendous bearing on an estate/elder care plan – one proposal by President Joe Biden, one by Sen. Chris Van Hollen (and others) and one by Sen. Bernie Sanders. Sanders’ proposal is focused more on changes to the federal estate tax. The proposals by Biden and Sen. Van Hollen are aimed more at income tax changes. Although no legislation has yet been enacted, these proposals, if enacted in any form, could result in significant changes to the income, estate, GST and gift tax regimes.
Planning = security
A comprehensive plan should include the three foundational documents; a last will and testament; a durable power of attorney; and a living will/advance health care directive. It should include tax minimization strategies and strategies to protect assets from claims of potential future creditors and possible divorce situations. Finally, a plan should also ensure that proper surrogate decision-making authority is delegated when incapacity strikes.
The will, which is the last expression of how an individual’s assets will pass upon death and who will receive such assets, can address some of the tax and creditor protection issues; however, it typically does not function effectively to address more sophisticated tax-driven strategies. Keep in mind that if an individual dies without having prepared a will, the statutory laws of descent and distribution – that is, the laws of intestacy – will determine who will inherit.
The durable power of attorney is a document whereby an individual (known as the “principal”) designates another person (called the “attorney-in-fact”) as the principal’s agent to make legal and financial decisions for the principal if the principal is unable (or unavailable) to make such decisions. A power of attorney is “durable” if the authority granted to the attorney-in-fact remains effective after the principal becomes incapacitated. It is important that the power of attorney be as specific as possible. In New Jersey, if the power of attorney does not specifically authorize the attorney-in-fact to engage in certain activities for the principal, then the attorney-in-fact does not have such authority.
The living will and advance health care directive is an individual’s last expression concerning medical treatment. It is also the document by which the principal designates someone as the principal’s health care agent to carry out the wishes of the principal if the principal is unable to authorize their own treatment.
While the durable power of attorney and living will/advance health care directive may appear to be relatively basic documents, don’t be fooled. They are important documents in the planning process. As individuals age, their ability to make rational and appropriate legal, financial and health care-related decisions becomes compromised. Without these surrogate decision-making documents in place, an individual who loses capacity faces the unfortunate situation of not being able to manage their day-to-day affairs and not having anyone legally authorized do it for them.
In addition, because these documents are essentially contracts between the principal and the agent, the requisite level of capacity needed to execute these documents is relatively high. When incapacity strikes, if these documents have not been prepared and implemented, then the only recourse to provide surrogate decision-making authority is to have the individual judicially declared incompetent via a costly and time-consuming (and sometimes contentious) guardianship proceeding.
Planning for business owners
As a business owner, you have dedicated years to the growth and success of your business. You have struggled through various economic conditions to attract and retain customers, make payroll, pay expenses, etc. However, what happens when you no longer can or want to continue to run the business. Having a well-designed business succession plan will address retirement income of the current owners; taxation upon death; asset protection for surviving spouses and children; formalize arrangements for passing ownership and management control; intra-family rivalry issues; and family versus non-family ownership issues
A business succession plan is an integral part of any estate/elder care plan. While a will might address some of the issues raised previously, owners should ensure that their businesses’ operating documents reflect what should happen upon certain events, including death, disability and retirement. These documents include buy-sell agreements and shareholder/operating agreements. To ensure the validity of these documents, owners must be competent to enter into such arrangements, and with proposed the changes to the tax laws pending enactment, it is more important than ever for business owners to be proactive, rather than reactive, to ensure that their wishes are carried out.
Aging positively doesn’t happen by itself. The key to staying golden in your golden years is to identify your goals and plan early to achieve them. While it is anticipated that significant tax changes may be enacted, the nature and effective dates of those tax changes is uncertain. One thing is certain; delay can be costly.
Jason E. Marx is a partner and chairman of the Taxation and Estate Planning Group and the Elder Care and Special Needs Planning Group at Curcio Mirzaian Sirot LLC in Roseland.