Estate Planning Tools Let Terminal Patients Stay in Control

NEW YORK--The power of attorney, the health-care proxy, and theliving will "are the three simplest things we can do to controlour destiny. They're not overly complex, not expensive, and onceyou arrange for these documents, you can get on with your life,"attorney Edward J. Mullen told cancer patients at a legal clinicin the Manhattan office of Cancer Care, Inc., an agency that providesprofessional social service support to cancer patients and theirfamilies.

The patient should also have a will, no matter how small the estate.Mr. Mullen explained that in most cases, if there is no will,the state will determine which relatives will inherit. "InNew York, Surrogate's Court may request a family tree, so it cannotify all the people who qualify as heirs." Trouble mayensue, he said. "Your family may hear from the lawyers ofrelatives you haven't seen in 50 years."

The Power of Attorney

Without a power of attorney, Mr. Mullen said, when a patient suddenlybecomes incompetent, someone will have to go to court to get aguardian appointed to take care of the patient's affairs.

"It's a time consuming and costly process that you wouldn'twant to get into if you can help it," he said. "Thepower of attorney gives you the right to name someone you trustto take care of your affairs. This person cannot make your medicaldecisions or write your will, and he can't make gifts of yourproperty, unless you specifically grant such power."

New York State has a specific power of attorney form, he said.But whatever form is used, it should provide for a so-called durablepower of attorney, which guarantees that the power exists evenif you become incompetent.

Mr. Mullen also warned against putting one's copy of the powerof attorney in a safety deposit box. "Make sure the personto whom you gave the power of attorney has a copy of the document."

The health-care proxy is, in effect, a medical power of attorney,and a living will is a written statement specifying whether thepatient wants extraordinary measures taken to keep him or heralive. The proxy need not be a family member and will take precedenceover the family.

Mr. Mullen's clients fill out three proxy forms, each witnessedand notarized (notarization is optional). The proxy and an attendingphysician receive a copy.

Pros and Cons of Viatical Insurance Settlements

Cancer patients with a terminal diagnosis may want to considerselling their life insurance policy for cash to a third party.Such an arrangement, known as a viatical settlement, can providethe funds patients need to live out their lives with dignity orperhaps to fulfill lifelong dreams, such as travel.

"The viatical company will pay you a percentage of the valueof the policy," said attorney Edward J. Mullen in his CancerCare talk (see story above). But there's a catch.

An IRS ruling last year requires the patient to pay tax on thecash settlement minus the premiums paid. "If you've paid$4,000 in premiums on a $250,000 policy for which are you receivinga settlement of $200,000, the IRS considers $196,000 of the settlementas taxable income," Mr. Mullen said.

Furthermore, whatever is left of the settlement after the patientdies will be subject to estate taxes.

Despite these caveats, Mr. Mullen said that such settlements maybe worth considering, depending on the patient's individual circumstances.