09.17.14

Wealth Management Group Newsletter – Fall 2014
Peggy Vyborny, Steven Lewis

Revise Your Estate Plan to Cover Health Care Directions
Peggy Vyborny, CPA

What is a person to do if he or she is terminally ill, or permanently unconscious and unable to communicate? Who will make medical decisions on his or her behalf? This is why it is important to put one’s wishes in writing before a situation like this arises. Generally, that means executing two documents: 1) a living will and 2) a health care power of attorney. This blog explains the differences between the two documents and describes what they can accomplish.

When Jay’s motorcycle accident left him unconscious and on life support, his family had to make the difficult decision of keeping the life-sustaining machines on or turning them off and allowing Jay to die. Jay’s wife thought he would prefer the latter, while Jay’s parents wanted to hold out and see if he would wake up.

This unfortunate family debate did not have to take place. It could have been avoided if Jay had included his wishes in his estate plan using a living will and a health care power of attorney (HCPA).

Defining the Documents

To ensure that your wishes are carried out, and that your family is spared the burden of guessing — or arguing over — what you would decide, put those wishes in writing. Generally, that means executing two documents: 1) a living will and 2) a health care power of attorney (HCPA).

Unfortunately, these documents are known by many different names, which can lead to confusion. Living wills are sometimes called “advance directives,” “health care directives” or “directives to physicians.” And HCPAs may also be known as “durable medical powers of attorney,” “durable powers of attorney for health care” or “health care proxies.” In some states, “advance directive” refers to a single document that contains both a living will and an HCPA.

For the sake of convenience, we will use the terms “living will” and “HCPA.” Regardless of terminology, these documents serve two important purposes: 1) to guide health care providers in the event you cannot communicate and are terminally ill or permanently unconscious, and 2) to appoint someone you trust to make medical decisions on your behalf.

A living will expresses your preferences for the use of life-sustaining medical procedures, such as artificial feeding and breathing, surgery, invasive diagnostic tests and pain medication. It also specifies the situations in which these procedures should be used or withheld.

An HCPA authorizes a surrogate — your spouse, child or another trusted representative — to make medical decisions or consent to medical treatment on your behalf when you are unable to do so. It is broader than a living will, which generally is limited to end-of-life situations, although there may be some overlap.

Working in Tandem

It is a good idea to have both a living will and an HCPA or, if allowed by state law, a single document that combines the two. A living will typically details the procedures you want and do not want under specified circumstances. But no matter how carefully you plan, a document you prepare now cannot account for every possible contingency down the road.

That is where an HCPA comes in. Although an HCPA can include specific instructions, it can also be used to provide general guidelines or principles and give your representative the discretion to deal with complex medical decisions and unanticipated circumstances (such as new treatment options).

This approach offers greater flexibility, but it also makes it critically important to appoint the right representative. Choose someone whom you trust unconditionally, who is in good health and who is both willing and able to make decisions about your health care. And be sure to name at least one backup in the event your first choice is unavailable.

Revising Your Estate Plan

Before an illness or an accident, consult with your advisor to revise your estate plan to include a living will and HCPA. Without these important documents, your loved ones may have to make medical decisions on your behalf without any guidance. For help understanding the legal and tax consequences of these particular strategies, contact Peggy Vyborny at pvyborny@orba.com or call her at 312.670.7444.


A Primer on the Timing of RMDs
Steve Lewis, CPA

A key aspect of any retirement plan is knowing when to begin taking required minimum distributions (RMDs) from employer-sponsored defined contribution plans and traditional IRAs. This blog discusses how to determine the minimum distribution amount that can be taken from an account each year, along with the tax implications, which vary according to the age at which withdrawals begin.

Planning for retirement is an important aspect of your overall wealth plan. A key aspect of any retirement plan is knowing when to begin taking required minimum distributions (RMDs) from your employer-sponsored defined contribution plans and traditional IRAs.

You can begin taking penalty-free retirement plan distributions when you turn 59½. If you are fortunate enough to have other income to fund your lifestyle and do not need to tap your retirement funds at that age, you can forgo taking a distribution until you turn 70½. However, if you do not begin taking RMDs at 70½, the tax consequences are severe: The penalty on any shortfall — that is, the difference between what you should have taken and what you actually took — is 50%.

Specifically, you must take your initial distribution by April 1 of the year after you turn 70½. However, you can take it during the year in which you actually turn 70½. Waiting until the following year to take your initial distribution may have negative ramifications. Why? Because you will be required to take two taxable distributions within the same year, and you may end up in a higher tax bracket.

Following your initial RMD, the IRS requires you to take subsequent ones by the end of each calendar year. If you would like to spread out the distribution throughout the calendar year, you may take installments, so long as the total of the installments equals or exceeds the RMD.

You are free to make withdrawals in excess of your RMD. This will reduce the balance used to calculate your RMD in future years. However, the excess over the RMD you withdraw one year does not count toward your RMD in another year.

So what is the minimum distribution amount you can take from your account each year? To calculate, you divide your balance at the end of the previous tax year by the applicable IRS divisor. Your RMD will vary with the balance in the account, your age and possibly your spouse’s age. Before taking any action, be sure to discuss your options with your tax, legal or accounting advisor. For more information or for help with your RMD, contact Steve Lewis at slewis@orba.com or call him at 312.670.7444.

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