When people think of traditional estate planning, they think of how they want to pass on their assets after death. One thing that is often times overlooked, is planning for incapacity during lifetime. Nobody wants to consider that they may become incapacitated, however having a plan in place prior to incapacity will result in less headache down the road. Let’s take a look at an example:
You collapse while at a picnic with family and friends and are unresponsive. What would happen in this emergency situation? Who would make medical decisions for you?
You can designate an agent under a Health Care Power of Attorney to step into your shoes to make health care decisions for you when you are unable to do so yourself. You can also designate backup agents in the event the first person that you designate is unable or unwilling to serve. In addition to the health care power of attorney documents, we will also create a living will, which expresses your wishes regarding end of life decisions. So, while nobody wants to consider the possibility that they face this type of situation, having a plan in place will provide you with peace of mind: by creating a living will, your medical wishes will be followed by doctors, and, by creating a health care POA, you will know that the people you trust the most will be making medical decisions on your behalf. Now let’s consider your financial affairs:
How would your financial life continue after incapacity? Who would be able to use your money to pay the mortgage, medical expenses, and other bills when you are unable to do so?
If you do not have the proper legal paperwork in place prior to incapacity, whoever needs to pay bills on your behalf, will have to petition the court to be appointed your guardian. This court process is known as living probate. Living probate can be demeaning as you will have to be declared incompetent by two physicians in open court, it can be lengthy as a typical guardianship case lasts between 6-9 months, it is expensive because whoever petitions the court on your behalf will likely need an attorney, and you also are appointed an attorney to protect your financial affairs, and finally, it can be aggravating as whoever is appointed your guardian will have to file a yearly accounting with the court showing how your money was spent. So, how can you avoid having to go to court? There are two main legal vehicles that work together:
First is a financial power of attorney. This is the legal paperwork in which you designate who will step into your shoes and make financial decisions on your behalf. Similar to a health care POA you can name backup agents, in the event your first choice is unwilling or unable to serve.
Second is to setup a revocable living trust. A revocable living trust has two main purposes. One main purpose is for it to serve as a will substitute, in which you re-title assets into the name of your trust, and then designate who you want to inherit those assets. The second main purpose is to allow the person that you have named in your trust to manage the trust-assets upon your death or incapacity. Your successor trustee, simply steps into your shoes and acts on your behalf upon providing proof of your incapacity to the institution, such as the bank.
When you have these two legal documents in place, your agent or trustee can write checks on your account and take other actions necessary to keep your financial life in order.
Nobody wants to consider incapacity. But, as we live longer lives, it’s increasingly likely that we will have one or more periods of incapacity during lifetime. Incapacity is difficult emotionally and physically, both on the individual and those around them. But, a seamless estate plan can help ease the logistics and emotional strain on both you and those around you so that you can focus on your recovery.
For more information, visit www.sinclairprosserlaw.com.