College Prep!

A recent post discussed the importance of having a power of attorney for finance in place in regards to dementia. On the flip-side, many families overlook the importance of powers of attorney for their college aged children.

Once a child turns 18 he or she can vote, marry, or sign up for the army – and they also become a legal stranger in many ways. No longer may you as the parent be able to access their grades at school, and in some states, you will not be able to make health care and or financial decisions for them without a court order.

As you help your child pack and prepare for college, you should also take some time to learn about the requirements for powers of attorney in the state where your child will be a student. And encourage your child to take the time to complete some basic paperwork nominating who in the family should take charge if an unlikely accident or illness occurs.

Dementia and Investing

The September 2008 edition of Smart Money Magazine offers an article entitled Vanishing Legacy, which discusses the implications dementia may have on a person’s investments. While dementia is commonly associated with mood swings, memory loss, and confusion, another side effect that is not as readily recognized is a sudden inability to make sound financial decisions.

One family profiled ended up with the daughter going to court, fighting for several years to prove her mother’s incapacity and seeking guardianship over her mother’s finances. While eventually granted, the older women lost approximately $1 million of her life savings due to risky investments. The article emphasizes that brokers, unlike financial advisors, are not held to a suitability standard when working with clients.

Never knowing when dementia may or may not strike (one person profiled had early onset Alzheimer’s disease at age 48), it may be wise for people to complete powers of attorney for finance. These forms allow for a loved one or trusted advisor to take over financial responsibility if the person becomes incapacitated. While incapacitation needs to be proved, the process is more efficient than a court room fight for guardianship. Since a power of attorney needs to be completed by a competent individual, it is best to take action while you are healthy….don’t wait until red flags begin to emerge.

What is the "death tax"?

The “death tax” or estate tax as it is more appropriately called, has been apart of American society since 1916, when the federal government began taxing estates in order to prevent the concentration of wealth within families. The tax is levied on estates that exceed a certain value. It is important to note that there is the federal estate tax, and in some instances there is a state estate tax as well (Wisconsin’s estate tax ended on 12-31-07, however, it may return in the future).

Technically, the tax is assessed on an estate upon death if the estate’s value exceeds a certain threshold. As a result, the estate will pay the tax, reducing the amount your heirs inherit. However, not every estate pays the tax. If your estate is below a certain amount, it is considered “exempt”, and no tax is owed. In 2001 Congress passed a law causing the exemption amount to change over time: in 2003 the exemption amount was $1 million, it increased to $1.5 million in 2004 and 2005, and increased again in 2006 through 2008 to $2 million, in 2009 it will be $3.5 million, then in 2010 there will be no tax, and in 2011 the exemption limit will return at $1 million.

The value of your estate is essentially all of your assets minus your liabilities. However, you must remember to include the value of life insurance you owned as a liability. For many young families, carrying significant life insurance can raise the need to plan for estate taxes. If you find yourself in the area where possible estate taxes may apply, it is wise to speak with an estate planning attorney about tax planning strategies, including: A-B spousal trusts, gifting, and charitable giving.

Right to Die

News out of Italy once again aims a spotlight on how a person can express his or her feelings about being kept alive if they fall into a vegetative state. Just like Terry Shivao’s case, this young women appears not have had the appropriate paperwork in place.

In Wisconsin, a person can complete a “living will” otherwise called a “declaration to physician” indicating his or her preferences about feeding tubes and other means of artificially prolonging life. Without such a document, the stage is set for disagreement and court fights.

Estate planning is about making sure your wishes are followed. By completing a “living will”, you can assume control of the situation, speaking through paperwork even when you are not able to verbally communicate. As this story, and too many others illustrate, no one is ever too young to ignore this important issue. Take control, and let your wishes be known.