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Phone: 201-345-3018

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Including dementia risk within estate planning

For many older people, concern over the possibility of dementia is a serious matter. Anyone who has cared for a loved one who suffers from dementia understands the difficulties involved. When a fully capable adult begins to lose his or her ability to function independently, the entire family is affected. Many in New Jersey look for ways to address this risk within their estate planning package, especially in regard to IRA savings.

When one spouse has an IRA, he or she often wants to name the other spouse as the primary beneficiary of that account, with the expectation that they will roll the fund over into their own IRA at the time of death. From that point forward, couples usually plan to name their children as the beneficiaries of the surviving spouse's IRA. When there is a concern that the surviving spouse could develop dementia, those plans can become more difficult to implement.

It is not possible to make decisions about an IRA that has not yet been set up. Even if the surviving spouse intends to name his or her children as beneficiaries, that choice cannot be made until the new IRA is funded, which takes place after the death of the first spouse. It is also not possible to name "successor beneficiaries" to an IRA; only the primary beneficiary can control the account when he or she inherits those savings.

A solution lies in creating a power of attorney that would grant an individual the ability to make important financial decisions in the event that a spouse is impacted by dementia. This would give a trusted loved one the ability to make changes to the IRA and any other financial matters. In order for this estate planning approach to work, it is important that individuals work with their IRA provider to ensure that the paperwork is done in a manner that the IRA will accept. It is also essential to discuss the matter in depth with the chosen proxy, so that there is no confusion as to what a New Jersey family wants to take place if that person should ever be asked to fulfill the power of attorney role.

Source: morningstar.com, "Planning for the Dementia Factor in Retirement", Natalie Choate, Dec. 12, 2015

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