The Well-Planned Life: End of Life Planning

For all the complicated emotions that arise when one thinks of end-of-life planning, it's important to remember the goal of that planning—to reduce, as much as possible, the grief and stress your survivors will feel by making clear decisions about these matters now.


Illustrations: Jing Jing Tsong

Janis Calton is 61 years old, living at home with her mother. She has no children, spouse or close family other than her elderly mother, whom she cares for on a daily basis. Recently, the idea struck her that if she were involved in a car accident or some other scenario in which she were incapacitated or, at the very worst, passed away, who would take care of her mother? Who would inherit her estate? How would her remains be dealt with?

“There were decisions to be made,” she says. “Should I open a trust to avoid probate or do I invest it in a charity?”

It’s not an easy topic to discuss or even think about, but the end of one’s life is not just an extremely emotional matter, but also a highly complex legal and financial process. It requires a lot of careful planning—whether the plans involve yourself or an elderly family member—ranging from long-term healthcare, to funeral or cremation arrangements and estate planning.

“For several years, I would think on and off if I should have a will or not,” says Calton. “I just kind of talked it around for a while until I ended up doing it.”

After meeting with an attorney, Calton was able to work out what would happen to the portion of the house she owned with her mother, where her other assets would go and, if there was anything left over, to which charity she would like to donate in her memory.

“It has given me peace of mind, more than I would have thought,” she says. “Then again, my situation is different because I don’t have kids to make decisions, but I feel pretty good that things won’t be in limbo and things will be handled quickly.”
 
 

The Legalities of Dying

Law professor James Pietsch from the William S. Richardson School of Law at the University of Hawaii at Manoa says it’s a good idea to at least have a will that specifies how you would like your assets dispersed, and who will make your decisions should you become incapacitated.

“Our motto is plan for the worst, and expect the best,” he says. “Because you’re not just going to die and ‘boom,’ your assets are going to be distributed.”

Pietsch specializes in elder-care law, and helps senior citizens plan for more than just their final wishes. “Our philosophy is to anticipate living an extended life where you’re going to become incapacitated physically and mentally,” he says. “We look at it more than just planning out [the dispersal] of your assets, but also your extended life.”

Pietsch says that, in many other states, power of attorney rests with the spouse or closest relative should you become incapacitated or pass away. But in the state of Hawaii, you must articulate in writing who will be your advocate should you become incapacitated.

“Most people never make those documents,” he says, referring to having an advocate who can make tough decisions according to your wishes. “If you don’t, Hawaii has a unique system in selecting a surrogate, and it’s not the next of kin.”

Piestch explains that the doctor providing care to the incapacitated party must gather the patient’s family—spouse, children, siblings and so on—to form a panel that selects a decision maker. But even when someone is elected, there are other bureaucratic steps that person must go through to make decisions. For this reason it is essential to put down in writing who you want calling the shots for you.

It may also be worth considering a living will, known in Hawaii as an advanced healthcare directive. “There are two parts to the healthcare directive: one is the designation of a healthcare agent. Where you say, ‘In the event that I cannot make any healthcare decisions for myself, my spouse or my children will make them for me,’” explains attorney Heather Conahan, who specializes in estate law. “The second part of it is what I affectionately call the ‘pull the plug decision.’ That’s where you say, ‘If I’m comatose, brain dead or whatever, it is my choice if I want to have the plug pulled.’” This decision can also be left up to your healthcare agent if you desire.

Once you have decided who is going to be your advocate and what you would like to happen should you become incapacitated, it’s time to tackle one of the biggest headaches in these scenarios: your estate and how you want it handled once you’re gone.
 

 

If time and money are of the essence in dispersing your estate to family members, friends or charities after you’ve passed away, Conahan recommends revocable trusts instead of wills to her clients.

“There are two main areas of law that we’re dealing with, and the first is probate—a process you have to go through in the state of Hawaii if you own $100,000 in assets or you own any real estate.” This must be done with or without a will; it takes place in a courtroom with a judge and can take between eight and 10 weeks.

“It takes a long time, it costs a lot of money–not because the probate court or the probate court judge charges a lot, but because an attorney charges a lot, often $4,000 to $5,000.”

The second area of the law Conahan mentions is federal, which charges a 45 percent tax on estates that exceed $3.5 million. If your estate is worth less than $3.5 million, than you’re safe, at least for this year. This percentage changes every year and is controlled by the IRS. Next year the percentage will be at zero, and the year after that the tax credit will fall to $1 million and the tax percentage will rise to 55 percent.

For these reasons, a revocable trust may be the best bet to avoid a long process in probate court and the steep federal tax if your estate is worth more than the federal tax credit.

“I tell people to view it like they are a shell corporation, and you are the president and CEO while you are alive and have capacity [to make decisions],” Conahan says. For example, bank accounts, property and everything else of value goes into the trust. When the owner of the trust passes away, the trust can simply have a new head appointed, a family member, for example, which requires less time in probate courts and avoids federal taxes.

Pietsch points out, however, that it’s still a good idea to have a will. “Wills are necessary, so I wouldn’t avoid [getting] one,” he says.  “[If you go with a trust] inevitably something may be left out of your trust and you’ll need a will as a backup.” He lists property, extra bank accounts and insurance policies as examples of things that can easily be forgotten during the planning process, but can throw a monkey wrench into the works if they are unaccounted for. 

Your Rights When Funeral Shopping

EMBALMING A BODY IS NOT REQUIRED

Whether you plan on cremation or burial, embalming is not a legal requirement in funeral planning. It should be itemized on any general price list provided by the mortuary you plan on using.

GENERAL PRICE LISTS

Before discussing plans or costs of services with a funeral provider, it must provide you with a general price list that itemizes any and all costs of services it provides. It doesn’t matter if it provides caskets or headstones, the provider must show you a list. By law you are not required to pay for a service you do not want.

NOTHING WILL PRESERVE THE BODY

No matter what anyone might tell you, embalming or any type of casket will not preserve a body indefinitely, it only delays the effects of decomposition. 

THE RIGHTS OF VETERANS

All veterans are entitled to a free burial and grave marker. Costs for transportation to the cemetery and other memorial services however, need to be covered. Visit www.cem.va.gov for more information.

Information provided by the Federal Trade Commission’s Web site. For more information on the subject, visit www.ftc.gov/bcp/edu/pubs/consumer/products/pro19.shtm.

 

Long-Term Healthcare

Few people think about long-term healthcare (LTC) when planning for the end of their lives, but for people living long lives it is a must. If you don’t have enough assets to pay for the care yourself, which, according to Genworth Financial’s 2009 Cost of Care Survey, is about $123,000 for a bed in a Hawaii nursing home per year, there are several options that need to be considered to make sure you receive the care you need without burdening loved ones with the cost or stress.

Though most of her clients usually have enough to pay for their end-of-life care, Conahan suggests looking for a plan that will cover your needs.
“But you don’t want to start too early,” she warns. “Although premiums are lower (when you’re younger), you generally don’t use the service until much later, so it is wasted money.

And if you are too old, the premiums are too high, so it doesn’t make sense either.”

For example, a local mutual insurance company in Honolulu estimates that a healthy 50-year-old who takes out a plan providing $200 worth of care per day would pay an annual premium of about $1,400. A 70-year-old who wanted the same coverage would be charged more than $5,500.

“Like any insurance, it’s easy to get it when you don’t need it,” says Marcus Bolan, wealth management adviser for Northwestern Mutual Wealth Management Co. in Honolulu, who handles both long-term healthcare and life insurance policies. “But the cost of long-term care could definitely devastate a financial plan, especially if there are two individuals who need it.”

Bolan stresses that the worst thing someone can do is nothing when planning for long-term healthcare. “Sometimes when people see how expensive it is to cover it, they don’t want to do anything,” he says. “The best thing, obviously, is to get the best amount of coverage you need, but if you can’t afford that, then why don’t we do something that’s less rather then nothing.”
 

 

It is also unwise to assume government programs like Medicare and Medicaid will pick up the bill. Medicare will only help pay doctor and prescription drug fees, and only on a short-term basis. Medicaid will pay for everything if you’re 65 and older, but only after you’ve exhausted all of your assets to pay for your care.

“And because Medicaid funding is shared between federal and state governments, services come under pressure when budgets are tight, like now,” says Bruce Bottorff, AARP associate state director.

With government resources being stretched in the struggling economy, and the extremes to which one must go to qualify for Medicare and Medicaid, long-term healthcare insurance might be a better alternative.

“With the high and rising costs of LTC and the concurrent increases in life expectancy and rising number of older adults, LTC insurance is one way to defray the exorbitant cost of services,” says Bottorff.

For more information and a deeper discussion about this topic in last year’s Well-Planned Life, see our October 2008 insert.
 

Long Term Care Facts

  • Hawaii’s elderly population of 65 years old and above will grow by 78 percent over the next 20 years to be about 327,000 people.
  • Hawaii is number one in the country in nursing facility occupancy rate.
  • About 83 percent of Hawaii’s Medicaid long term care spending is usually spent in nursing homes despite many aging people wanting to spend their remaining years at home.
  • About 69 percent of all 65-year-olds in the United States will require long term care for an average of at least three years in their lifetime.

For more information about long term care, visit www.aarp.org/health/longtermcare.

Cremation or Burial

According to Nanette Napoleon, a member of the board of trustees at Oahu Cemetery and a freelance local historical researcher, burying a loved one is the third-highest single expense you’ll ever pay, after buying a house and car. Not only is it something that can’t be avoided, it can also be hard to make wise purchasing decisions when grief stricken over a deceased loved one. “People are not good consumers when it comes to death,” she says. “It’s not like when you shop for a car, a house or clothes.”

There is a price for everything when burying or cremating a body, and, most importantly, there is a price difference if you want to buy services for a recent death (at need) or if you’re purchasing for the future (preneed).

There are various types of insurance that can cover the costs of cremation or burying a body, but if you want to go the cheapest way with the least amount of impact on the land, cremation is the rising trend in the industry.

“We are probably the highest, or one of the highest cremation states in the country,” says Harold Lewis Jr., the superintendent of the cemetery, adding that his organization performs about 2,000 cremations a year. “About 68 percent of all deaths in Hawaii are cremations.”

Cremations at the cemetery start at $750, memorial services in its chapel $895 and the most basic urn is $195. “Burials can cost up to $15,000,” notes Lewis.

There are also several prices for having ashes scattered at sea by a professional, renting out a large boat for a memorial or, if you want to keep the ashes, you can purchase a niche to house the urn.

However, not all people want to incinerate their remains, due to religious beliefs or other reasons. But to accommodate a traditional burial, you will have to look outside of Honolulu if you don’t already have a family plot.

“Nobody in Honolulu has anything left in terms of body burials,” says Lewis. “So all those traditional body-burying families are switching to cremation.”

 

There are still a few options left for those who want a traditional burial. At places like Mililani Memorial Park and Mortuary, at-need plots start at $4,500, grave markers at $900 and funeral services at $4,800. Though prices vary when it comes to finding a casket, Lewis says the cheapest one you’ll find in town starts at $3,750, for a total price tag of about $13,950.

You might be led to believe if you buy these services in advance, you’ll save money, but, according to Lewis, that’s not true. “A preneed price figures in that this person might live for another 20 or 30 years, and what will the cost be at that time in the future,” says Lewis. “So they’ll put in a built-in cost for preneed.”

Sometimes these decisions must be made fast when a loved one suddenly passes away, but Napoleon and Lewis recommend you put on your consumer hat and shop around and find the best price.

“I always tell families to call around and check other places,” says Lewis. “Even when they call to ask for our prices, I tell them to check elsewhere before making a decision.”

Another helpful tip they pass along is to know your rights. By federal law, as a customer, you are entitled to see a price list of any mortuary, cemetery or crematory’s services. “If you go in (a mortuary) and ask for a general price list for their services, they have to give it to you,” Lewis says. “If anyone walked into this office, and we started talking about anything related to funeral arrangements without giving a general price list, that’s a violation that carries a fine of up to $10,000.”

Lewis also notes that there are no regulations regarding how much burials, cremations or any other services required can cost, so research and shopping around is key to avoid being taking advantage of.

If cash is limited, or you want to be sure no one is burdened with having to shoulder the cost of your burial, consider looking for a preneed burial insurance policy. “When mortuaries sell a preneed plan, here in Hawaii the way the law is structured when you pay them for the service, they only have to put 70 percent in their trust to pay for your services later. So they pocket 30 percent,” says Lewis. “If you purchase the insurance, if you pay 100 percent in there, then that money is there. If there’s any money left over it goes to the survivors.”

Alternative Memorials   

It’s not written in stone, no pun intended, that one has to have a traditional burial or cremation as their memorial. In fact, there are many new options for people who would like a different approach than the standard headstone in a cemetery.

Become Multifaceted

Would you like to join the ranks of Michael Jackson and Ludwig Beethoven? Believe it or not, you can have your remains, or parts of them, compressed into the size, shape and color of a precious stone. The Mainland company, LifeGem, takes the carbon from you or your loved one’s cremated remains and compresses it into a uniquely colored diamond. Prices start at $3,499 for a .2- to .29-carat diamond. Visit www.lifegem.com or call 866-543-3436.

Become a part of a reef

For those who have spent a fair amount of time in the ocean and would like a little something different than having their ashes spread at sea, Eternal Reefs, out of Atlanta, Ga., can help you become a part of an artificial reef. Workers take you or your families’ cremated remains and incorporate them into the cement mix they use to build the domed-structures known as “reef balls.”  They can range in size and price from 2 feet tall and 3 feet wide at $3,995, to 4 feet high and 6 feet wide for $6,495. For more information, dedication placements and pricing, visit www.eternalreefs.com.

Return to nature

Though they don’t exist in Hawaii, some states have cemeteries that allow bodies to be buried without a casket. The claim is it’s much cleaner and better for the environment to be buried in a biodegradable casket, or nothing at all, than to have a traditional burial or cremation. Check out Florida’s Glendale Memorial Nature Preserve, where the plots are free, but the opening and closing of the grave will cost $1,800 to $2,800. For more information, visit www.glendalenaturepreserve.org.

 

Life Insurance

With so many different insurance policies to consider while planning for the inevitable, the one that sticks out the most is life insurance. But how big of a policy should one get, and what happens when the policy is redeemed?

“Basically, we feel that life insurance is the foundation of financial security,” says Bolan. “You can use the money for whatever you want, and that’s how we determine an insurance need by asking what are you trying to accomplish.”

Ideally, the insurance money is good for paying off debts such as a mortgage, making sure your spouse has enough to live on and supporting children.
Bolan sells two types of life insurance: term insurance and permanent insurance. “With term insurance, you are essentially renting your insurance,” he explains. “It provides temporary security, but you don’t build any equity or cash value.

“Permanent life insurance provides a lifetime of protection, and builds guaranteed cash value over time. Permanent life insurance is popular with my high-income clients who want to supplement their retirement planning through the cash value in whole life policies or have a permanent insurance need such as estate taxes.”

Though you may buy a policy for a certain reason, uses for the insurance payouts are completely up to the survivors of the deceased. While alive, you can state your wishes in a will, but the insurance company does not police the use of the funds once they are released. The best way to make sure your assets are spent according to your wishes is to have an irrevocable trust. A revocable trust, by comparison, can be changed at any time; for example, its president and CEO can be replaced. An irrevocable trust cannot be changed once signed. The trust can then function without any diversions to pay off estate taxes, for example.
 

 

Another reason to open a revocable trust for life insurance is to pay any federal estate tax your loved ones might owe if your estate exceeds the $3.5 million federal tax credit. “Many Hawaii families have expensive real estate properties but have limited cash to pay estate taxes,” explains Bolan. “Life insurance can help provide the liquidity to cover estate taxes, which are due six months after death.

“The families I work with don’t want to have to liquidate their real estate holding to pay taxes,” he continues. Bolan also says for large policies, it might be a good idea to set up an irrevocable trust to own the policy, since any policy you purchase, though tax free when paid out, is now a part of your estate. “That’s where you may want to work with advisers and lawyers,” says Bolan. “That way, they can set up an irrevocable trust, which puts the insurance outside of the estate making it tax free.”

But there are limitations for these policies, and it is important to read the fine print. Conahan recommends her clients speak with her first before they run out to buy any type of insurance related to their estate. “The life insurance guys, God bless them, want to sell you life insurance. They’re not going to make any more money by just giving you advice,” she says. “So, if you’re going to make an investment, like a $1 million life policy, you should probably also talk to an accountant and an attorney.”

Conahan further extends her policy to anything you might want to have sold after you die. “If you’re going to be selling any real estate or any asset stocks, it’s worth while before you do it to talk to an accountant or attorney,” she says. “Maybe there’s a better way to do it.”

Planning for the end can be a long and drawn out process. The pictures everyone seems to paint about the subject feel pretty grim. It’s your life we’re talking about, specifically, the final moments.

The worst thing to do, however, is nothing.

Take Janis Calton, for example. Now she feels better knowing her assets are going to the right people, and that she has advocacy in case the unthinkable should happen. “Emotionally it felt good to do it all, just to know that things are organized and set,” she says. “I would advise anyone middle aged to take the time to go over their assets and make sure they know what would happen to them if anything happens.”

Estate Tax Top Rates and Exemption Amounts

Calendar Year

Estate Tax Exemption

Top Estate Tax Rate

2008 $2 million 45%
2009 $3.5 million 45%
2010 N/A 0%
2011 $1 million 55%
2012 $1 million 55%
2013 $1 million 55%
2014 $1 million 55%