A Balanced Approach to End-of-Life Planning – Twin Cities

America is a death-denying culture. We don’t like to think about death, talk about it, or even acknowledge it as an inevitable reality. Even though we will all die, as will our loved ones, the topic is uncomfortable and often swept under the rug.

As consultants, we see this every day in our interactions with clients. It is not uncommon for each of us to deny our mortality and be overcome with intense emotions when the subject is brought up. Denial can be a coping mechanism, but it can also be harmful, depriving friends and family of special moments at the end of life – and also of the financial aspects of dying.

And in America, these costs are significant.

The cost of the final three months of care in a hospital can be over $56,300, according to the Federal Reserve (not all of which is covered by health insurance), and the cost of hospice care can therefore average $18,000. Dollars per month or more, according to 2016 data from the University of Pennsylvania.

Additionally, the direct costs associated with the death of a loved one can average $20,000 (including funeral home, accounting, legal and real estate fees) – even after taking into account the loss of income from taking a leave of absence to handle these matters. That’s according to a recent survey by Empathy, a technology company that supports grieving families. Consider that it takes the average person 15 months to complete all of the administrative tasks necessary to wind up a loved one’s affairs (18 months for executors), and you can understand the financial realities of death.

Why is the end of life so expensive?

Progressive disability is often accompanied by fatal illnesses. As people age, they become less able to take care of the house, cook, take care of finances, go for walks, or care for themselves. The need for services such as occupational therapy, physical therapy or home health care increases significantly due to disability – especially if a person wants to stay at home.

Most dying people need help in the last few weeks and often for much longer. Unfortunately, most people may not know that Medicare does not cover many of the services that dying people need, such as long-term care in a nursing home or care from a health aide at home. One notable exception is hospice, but qualifying for Medicare hospice can be difficult if the person has significant needs.

As a result, many families deplete their savings while caring for a dying family member. Family members who provide most of the care at the end of life are often stressed because they have to bear too much burden.

Five essential documents you need for end-of-life planning

Planning is essential so that you do not become a burden to your family at the end of your life. Even before you think about how you will cover your end-of-life costs, you need to consider the following five documents:

• Will: As your most important estate planning document, your will determines who you want to gift your assets to after your death and helps ensure that your estate is distributed correctly when the time comes. Your will will also specify who will be the guardian of your minor children and who will take in your pets if you become incapacitated.

• Power of Attorney (POA): A POA designates someone to step in and manage your finances if you are unable to do so. A general POA designates someone to act on your behalf in all matters (medical, legal, financial, etc.), while a limited POA designates someone to act on your behalf only in certain matters or events (e.g. inability to manage your to manage affairs during this time). a medical emergency). If you are single, it is very important to have a power of attorney agreement because you do not have a spouse to step in, and without a spouse, a court will decide who should serve as guardian.

• Patient directives: A healthcare directive works similarly to a POA, but governs medical rather than financial decisions. There are two main types of policies. An advance directive sets out a person’s instructions or preferences regarding future medical treatments, particularly end-of-life care if the person no longer has the capacity to make health care decisions. A health care power of attorney appoints a person to make decisions on their behalf if they are unable to make health care decisions (temporarily or permanently).

• Beneficiary designations apply to life insurance or retirement accounts such as 401(k), 403(b), IRAs, etc. They determine who receives your benefits upon your death and, importantly, they supersede the information in your will. It is advisable to review beneficiary designations regularly, but at least once a year.

• Trust: A trust is not necessarily a document per se, but rather a legal entity created to manage assets on behalf of one or more beneficiaries. The person creating the trust (the “donor” or “trustor”) can direct how and when the beneficiaries will receive the trust’s assets. There are many types of trusts, but the one we’ll focus on here may be suitable for end-of-life planning – an irrevocable trust.

An irrevocable trust, as the name suggests, cannot be changed or terminated once it is created. The primary advantage of an irrevocable trust in end-of-life situations is that assets are removed from the donor’s taxable estate and trust assets can be used for the benefit of a surviving spouse who receives certain tax benefits.

Establishing and administering trusts can be expensive and complex. Therefore, before adding a trust to your estate plan, be sure to speak with your financial advisor or an estate planning attorney to ensure that a trust makes sense.

Investment and end-of-life planning strategies

Wealth Enhancement Group has developed a planning tool called Your Money Matrix to help individuals and families maintain the income they need potentially throughout their lives, especially as the end of life approaches. This involves investing funds in accounts that correspond to the taxation of assets and income – taxable, tax-deferred and tax-deferred. Clear time frames are then established for when an account holder needs the money using the following rules:

• Short term: This is money you need now or in the next three to five years. These should be low-risk investments.

• Medium term: You will need money between six and ten years from the date of founding. Balanced investments are generally recommended.

• Long term: Money you may need in more than 10 years. Since you won’t need this money for at least 10 years, these investments should be focused on growth.

You draw cash from each bucket as part of a multi-year strategy, depending on your cash flow needs, current and future tax rates, and your timing of need. Your Money Matrix gives you peace of mind by providing for yourself and your family – no matter where taxes, markets or inflation go, or if something unexpected happens, such as a fatal, debilitating illness.

The best preparation: Stay as healthy as possible

According to doctors at the Mayo Clinic, about 30% of your quality of life as you age is due to genetics and 70% is due to lifestyle choices. So we have a lot of control over the quality of life we ​​have as we age. That means eating right, getting regular moderate exercise, sleeping at least seven hours a night, managing stress, quitting smoking, reducing screen time (and limiting caffeine and alcohol), and socializing with family and friends to meet friends.

End-of-life planning doesn’t have to be something we sweep under the rug. In fact, it should bring more meaning and satisfaction to the limited time we know we have left.