Is Your Estate Plan Incapacity Proof?

For most people, it is perfectly natural to think about estate planning only in terms of planning for death.  While planning for your death is very important, if that is all you plan for, your planning can quickly become woefully inadequate.  

As medical knowledge and technology have improved over the decades, so too has modern medicine’s ability to keep people alive for much longer.  It is no accident that in many areas of the country, long-term care facilities such as assisted living centers and nursing homes are being built at a record pace.[1] 

At first blush, staying alive longer would seem to be a good thing.  For many people, that is the case.  However, simply living longer does not always result in ideal circumstances.  Longevity coupled with physical or mental incapacity can be extremely challenging, and even more so if you fail to make arrangements for someone to assist you during that period of time.  

With proper incapacity planning, you can rest assured knowing that your affairs are in good hands, out of the public eye, and being managed without the expense of lawyers, courts, and unnecessary complications.

What Is Incapacity?

Before we discuss how to plan for incapacity, it is important to clarify what it means to be incapacitated. Each state has its own method for determining legal incapacity, and most have enacted laws that define what incapacity is. For example, in states that have adopted the Uniform Probate Code, an incapacitated person is typically defined as follows:

“Incapacitated person” means an individual who, for reasons other than being a minor, is unable to receive and evaluate information or make or communicate decisions to such an extent that the individual lacks the ability to meet essential requirements for physical health, safety, or self-care, even with appropriate technological assistance.[2]

Although some states have defined incapacity more broadly or more narrowly than the Uniform Probate Code, in most states, the above is a common definition of legal incapacity. From a purely practical perspective, however, incapacity can be described as an ongoing condition where you simply do not have the mental ability to take care of routine tasks for yourself without assistance from someone else.  

Such tasks might include:

  • Paying your bills
  • Cooking your meals
  • Bathing
  • Grooming or dressing yourself
  • Taking your own medications
  • Remaining able to protect yourself from financial or physical exploitation

Does My Will Help Me If I Become Incapacitated?

Almost all estate plans created in this country include a Will.  A Will is a legal document that allows you to memorialize your wishes for what you would like to happen after you have died.  For example, a will allows you to:  

  • authorize someone to handle your final affairs after your death (an executor or personal representative)
  • name who will receive your property and financial accounts and in what shares, including successor or backup beneficiaries and
  • designate guardians of your minor children.  

Did you notice a theme in the list above? They are all things that must be handled only after you have died.  That is an important point.  A Will only becomes effective once you die. So does a Will help you if you become incapacitated?  The short answer is ‘no.’ A Will is of no help if you become incapacitated.

How to Create a Comprehensive Incapacity Plan 

To provide some level of incapacity planning if your estate plan includes only a Will, you must have additional legal documents prepared, including at least a financial Power of Attorney and an Advance Health Care Directive.  

Financial Power of Attorney

A financial Power of Attorney (POA) is a legal document that you sign before you become incapacitated that allows you to appoint a trusted individual to act as your agent (meaning the appointed individual can act on your behalf).  

In this document, you spell out what your agent may do.  A general POA allows an agent to handle most of your financial affairs whereas a limited POA restricts an agent’s actions to certain items or abilities and for a limited amount of time.  Legally, your agent must act in your best interest when handling your property and legal affairs.  

A POA can, and in many cases should grant the power to take the following actions:

  • Manage your deposit and banking accounts
  • Withdraw funds from your retirement accounts
  • Collect your mail
  • Enter into contracts
  • Deal with your various insurance companies
  • Sell, mortgage, lease, and manage real property and
  • Make investment decisions on your behalf. 

You can also determine when your agent is allowed to act on your behalf.  It can be restricted to only after you have become incapacitated (a springing POA) or take effect as soon as you sign the document (an immediate POA).  When planning for your incapacity, it is important that your POA be a Durable Power of Attorney, which means that your POA endures and remains effective even after you become incapacitated (i.e. your incapacity does not affect the validity or effectiveness of the POA document or your agent’s powers thereunder).  

If your estate plan contains only a Will and no financial POA (or an invalid POA), your loved ones will have to go to court to have someone formally appointed to take care of your financial and property matters for you through a process known as guardianship or conservatorship.  This can be a very costly, public, and time-consuming process for your loved ones during a very emotional and stressful time.  

Advance Health Care Directive

An Advance Health Care Directive or advance directive is a document or set of documents in which you can appoint an individual to act on your behalf regarding medical decisions (when you are unable to make or communicate your own wishes), and if authorized under your state law, memorialize some of your medical and end-of-life wishes.  

Durable Medical POA

Similar to a financial POA, a Durable Medical POA is one kind of advance directive that allows you to appoint an agent, often referred to as a medical or healthcare agent or proxy, who has the ability to make medical decisions on your behalf when you are unable to communicate your wishes yourself (i.e. if you are unconscious, even temporarily).  

Living Will

A Living Will is another kind of advance directive in which you can specify the kinds of end-of-life decisions that you want your doctors or healthcare agent to make on your behalf.  In some states like California, an Advance Health Care Directive will contain both a medical power of attorney and end-of-life instructions. Other states require separate legal documents.  Regardless of the format, these documents are a critical component of making a comprehensive estate plan that provides for your incapacity, which occurs more often than we realize.  

By naming someone you trust to make healthcare decisions for you, similar to the decisions you would have made if you still had capacity, you can ensure that you receive the care and medical treatment that is most appropriate for you.  

If you do not have an Advance Health Care Directive, and you are unable to make or communicate your healthcare wishes to your medical providers, your loved ones will be forced to go to court and have a judge decide who can make medical decisions for you.  This stressful situation can be avoided by creating an Advance Health Care Directive today.  

Revocable Living Trust

For those who want to make their estate plans truly incapacity-proof, a revocable living trust can be a powerful legal tool.  This type of trust has become the foundation of many well-constructed estate plans in this country.  A revocable living trust is a legal agreement between a trustor – sometimes called a “settlor,” “grantor” or “trustmaker” (the person who contributes his or her money and property, otherwise known as assets, to the trust) – and a trustee (the person charged with managing, investing and distributing the trust assets) to properly manage the trust assets on behalf of the beneficiary (during your lifetime, you are the current beneficiary of your revocable living trust).  

Again, the trustee agrees to manage and protect the trust property for the benefit of the beneficiary(ies).  In order to do so, for most revocable living trusts, ownership of your trust assets is changed (i.e. retitled) from you as an individual to the trustee of your revocable living trust, which is often (at least initially) the trustor him or herself.  So essentially, you can serve in all three (3) positions as the trustor, trustee, and beneficiary of your revocable living trust.  

Holding assets in this special type of legal structure (a revocable living trust) creates a great deal of flexibility to deal with incapacity issues as they arise.  

For example, if you created a revocable living trust, named yourself as trustee, and transferred most of your property into the trust, you could use and enjoy your property just as you do today.  But if you suddenly become incapacitated, a successor trustee (named by you beforehand in your trust document) could quickly and seamlessly step into your shoes as trustee to continue managing the trust property for your benefit throughout any period of your incapacity.  

Another significant benefit is that a Revocable Living Trust allows you to accomplish this “incapacity planning” privately without court intervention or oversight and without the attendant and expensive attorney fees and court costs.  

Even when you die, your successor trustee has the authority to continue to manage the trust property pursuant to your wishes or distribute it to your remaining designated living beneficiaries (typically, your loved ones including family, friends, and charities). Again, this can be done completely outside of the court system, thereby eliminating significant costs, delays, and invasion of your and your loved ones’ privacy. 

Review and Update Your Estate Planning Documents

Do not forget that this incapacity planning is only as good as the individuals you choose to serve in these roles. If the person or people you named can no longer fulfill their responsibilities, you will need to change your legal documents as soon as possible to ensure that the best possible people are serving in these crucial roles on your behalf.  

Finally, it is important to remember that an estate plan containing a Trust should still include a Will, Financial Power of Attorney, and Advance Health Care Directive.  Each of these documents has important legal functions designed to address circumstances that a trust alone cannot.  

Contact Syntero Group to Learn More About Incapacity Planning

By carefully crafting each of these legal documents with our help, you can feel confident that your loved ones and the property that you have worked your whole life to obtain will be in good hands if incapacity strikes.  We are here to help you think through and implement each decision that goes into making your estate planning truly incapacity-proof.  

Contact Syntero Group online, or give us a call today.