When it comes to estate planning, chances are you are missing a critical step in the process. Even if you have worked with an estate attorney and financial planner, you may not have received guidance to account for an important, but often overlooked, aspect of estate planning known as vulnerability planning.
No matter how carefully you’ve arranged for your assets to be managed after you die, it’s likely that you do not have the necessary provisions in place to handle your finances properly should you become incapacitated in some way while you are still alive.
If you have not fully considered this risk, you are not alone. Unless you have witnessed what can happen without having adequate protections in place, the potential risk might not seem like a priority right now. Many people simply trust and expect their loved ones to step in and do the right thing if necessary.
Here’s why ignoring vulnerability planning is a mistake and how to take action now to protect yourself later.
Why is Vulnerability Planning Important?
At any given time, anyone can experience a major illness or devastating injury that can limit their ability to attend to financial matters. As we age, this likelihood increases as most people experience some level of cognitive decline or incapacity in their later years. This is a reality of life that we all need to face and proactively address.
The purpose of documenting a vulnerability plan is to make certain your finances are handled as you wish when you are no longer able and that you receive the quality of care you expect and deserve.
Unfortunately, being in a diminished or incapacitated state leaves far too many people vulnerable to potential fraud, scams, financial mismanagement, elder financial abuse, or neglect.
We’ve all heard stories about elderly or otherwise vulnerable people being taken advantage of, but few believe it can happen to them. What is so heartbreaking about many of these stories is that the most common culprits are not strangers, but trusted acquaintances, caregivers, and loved ones. Whether the actions are malicious or simply the result of irresponsible behavior, the financial and emotional harm can be devastating.
Without putting a plan in place, you not only leave yourself vulnerable but it can cause your loved ones to feud and stress over your money and your care in ways you would never expect or want.
What Should Your Vulnerability Plan Include?
In addition to an updated will, other documents you should have in place include a durable financial power of attorney, an advance health care directive, and a health care power of attorney. You may also benefit from establishing a revocable trust.
Talk to your loved ones about your wishes. Make sure they are aware of what you want and that they are willing and able to take on the responsibilities. It is also important to revisit your plan often to make sure it is up-to-date and still aligns with your wishes and circumstances.
Durable Financial Power of Attorney:
If you become incapacitated, it is important to have a durable financial power of attorney in place so you can appoint someone to ensure your bills can be paid and assets can be accessed as needed. A financial power of attorney is a legal document that gives someone else the authority to take specific actions on your behalf, such as signing checks and authorizing payments.
However, if you are incapacitated or are unable to make decisions for yourself, that power of attorney ends. A power of attorney that is durable is one that remains valid even in the event that you cannot act or speak for yourself.
Durable Health Care Power of Attorney:
You will also need to appoint someone to make medical decisions on your behalf if you are no longer able to do so. A durable health care power of attorney is a legal document that gives someone the authority to make decisions related to your health care if you become incapacitated.
Health Care Directive (a.k.a. Living Will):
A health care directive, which is more commonly known as a living will, is like a health care power of attorney in that you are designating someone to make medical decisions on your behalf. But a living will only apply if you are permanently incapacitated, permanently unconscious, or terminally ill.
So, as you can see, the health care directive does not adequately account for longer-term care, cognitive decline, injuries that are not immediately life-threatening, or chronic illness that leaves you unable to care for yourself or make decisions about your own care.
Revocable Living Trust:
A revocable living trust allows you to move your assets into a trust, and the trust itself becomes the owner of your assets during your lifetime. To maintain control over the assets you can serve as both the trustee and the beneficiary, and you can also change the beneficiaries and terms of the trust as your circumstances or wishes change.
The main purpose of a revocable trust is that your beneficiaries can avoid probate after your death; however, revocable trusts are also a helpful tool in vulnerability planning. If you are unable to manage your own affairs, a revocable trust makes it easier to ensure your assets are being used continually for your benefit if, for example, your designated durable power of attorney is unable to act or if they cannot be reached.
If you become incapacitated during your lifetime without having a vulnerability plan in place, you leave yourself exposed to a number of risks and the government may become involved. A court-appointed conservator or guardian may need to be assigned before your assets can be used on your behalf or by anyone. The management of your assets, investments, and disbursements can become subject to court supervision and fees.
Overall, these legal documents and tools are essential to vulnerability planning to ensure your health and finances remain in the hands of people you trust and that you have chosen to act on your behalf.
With the help of a qualified financial planner or estate attorney, you should update your estate plan accordingly and put your mind at ease.
Robert "Fenn" Giles, Jr., MBA, CIMA® is a founding partner of Wealth Advisors of Tampa Bay (WATB) and acts as the firm’s President and Chief Investment Officer. WATB is an independent Registered Investment Advisor (RIA) located in Tampa, Florida. Learn more about them at wealthadvtb.com.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
The information in not intended to be a substitute for individualized legal advice. Please consult your legal advisor regarding your specific situation.