Planning for Incapacity
Many of our clients are initially focused on wealth transfer and are not concerned about planning for their incapacity. However, incapacity planning is a vital part of estate planning. And it is not just an issue for the elderly. Even those who are young and healthy can suddenly become disabled.
Maintaining ControlThe primary objective of incapacity planning is to maintain control. This includes preventing the need for court-controlled guardianship. Most people are familiar with the probate process at death. Guardianship is similar in that it is controlled by the Court, inventories and accounts must be filed, and it involves significant costs. If you do not plan for incapacity, a Court will determine when you can no longer handle important decisions and who will make those decisions for you. Most people would prefer to be the one to choose their substitute decision-maker and determine how and when that person takes control.
Basic Planning With Powers of Attorney and Medical DirectivesSome of the tools that we use for incapacity planning include financial powers of attorney, health care powers of attorney, HIPAA authorizations and living wills. If you are incapacitated, someone must step in to make medical decisions for you. Your health care power of attorney, living will and HIPAA release give instructions on your wishes and identify those who will make decisions when you are no longer able. You should also appoint someone to handle your finances during periods of your incapacity. A durable financial power of attorney is a must-have tool for that purpose. Keep in mind, however, that all powers of attorney are not created equally. While the statutory short-form power of attorney may cover many areas, a more comprehensive financial power of attorney enables your attorney in fact to do more in the event of incapacity. For instance, we often grant the agent the power to make certain gifts, deal with qualified retirement accounts, authorize changes in insurance policies, collect government benefits, and handle estate matters.
Planning with a Revocable TrustPowers of attorney have limitations. Occasionally, banks and other third parties refuse to recognize powers of attorney for a variety of reasons. Powers of attorney also don't allow the agent to overrule the principal. That can create problems if you lose capacity, but don't realize it. A durable financial power of attorney combined with a fully-funded revocable trust is the most effective way to handle your financial affairs during your incapacity. You can now, while you are healthy and have full capacity, under what circumstances your trustee may take over handling your affairs. Your successor trustee takes over only after that triggering event. Third parties are also more likely to accept the authority of a trustee than an attorney in fact.
Choosing the Right HelpersYou should keep in mind that the most carefully worded trust or power of attorney will be ineffective without the right trustee and attorney in fact. Choosing an attorney in fact or trustee is one of the most important decisions in making your estate plan.