Planning for Your Incapacity is Just as Important as Planning for Who Gets Your Stuff When You Die

Many of our clients come in because they want to ensure that their intended beneficiaries inherit their property. They haven’t thought about what happens if they are incapacitated. This is especially true for clients who are young and healthy. While we often think of incapacity as something that happens to the elderly, the reality is that anyone can suddenly become disabled from an accident, an illness or a random act of violence. Because of this, incapacity planning is a vital part of estate planning.

Someone must step in to make medical and financial decisions for you when you are unable to do so yourself. Some of the tools used for incapacity planning are durable powers of attorney, health care powers of attorney, HIPAA authorizations, living wills and revocable living trusts. Your health care power of attorney, living will and HIPAA release give instructions on your wishes and identify those who will make medical decisions when you are unable to do so. Durable financial powers of attorney and revocable trusts are used to handle your finances.  

One of the primary objectives of incapacity planning is to prevent the need for guardianship. Most people are familiar with the probate process at death. Guardianship is similar in that it is controlled by the Court, it requires inventories and accounts, and it involves significant costs. Sometimes this is referred to as “living probate.” Most people would prefer to choose who controls of their finances and medical decisions.

A durable financial power of attorney is a must-have tool. Keep in mind, however, that all powers of attorney are not created equally. While the statutory short-form power of attorney covers many areas, a more comprehensive financial power of attorney enables your attorney-in-fact to do more for you in the event of your incapacity. For instance, we often grant the attorney-in-fact the power to make certain gifts, create and fund trusts, deal with qualified retirement accounts, authorize changes in insurance policies, or collect government benefits. Powers of attorney also have limitations. Occasionally, some banks and other third parties refuse to recognize powers of attorney for a variety of reasons. Also, while powers of attorney create the ability to spend your money, they do not give instructions on how to spend it.

A durable financial power of attorney combined with a fully funded revocable living trust is the most effective way to handle your financial affairs during your incapacity. We have seen many families struggle over who should care for a relative with dementia. Establishing guardianship is a costly and stressful process. If you have a living trust and are incapacitated, the person you have selected as your successor trustee will be able to step in and manage the assets in your trust for as long as needed, without court interference. Your family cannot fight over who should be guardian of your estate, because your trust will own all of your property. You can define incapacity. You can specify how your money is to be spent. You can tell your trustee keep paying for your football tickets and that the trustee hire someone to take you. You can tell your trustee to make sure you go to church each Sunday.

 Planning for property distribution at your death is important to your loved ones. However, planning for incapacity may have a much greater impact on your quality of life.