Disability is an important yet often overlooked part of estate planning. Many people will give serious consideration to estate planning for their death, because we all know we’ll eventually die.  However, many people don’t plan for disability because we do not always believe we could one day become disabled.  The truth is, as we live longer lives through the advancements of medical technology, many of us will experience times of temporary disability and perhaps even a permanent disability. As estate planning professionals, we want to assist our clients in designing instructions in their Living Trusts that not only provide for taking care of them in the event of disability, but also instructions that take care of the people that the client was taking care of prior to the client’s disability.

Definition of Disability Planning

Planning for your possible mental disability or total physical disability that is so severe that it leaves the client unable to sign anything.

Incompetent: When a medical determination has been made that an individual has lost the mental ability to function effectively.

Incapacitated: When a probate court declares the person legally disabled.

Financial Power of Attorney

Many people rely on their Financial Power of Attorney (FPOA), and name an agent to assist them if they are disabled.  However, these are governed by principal – agency laws, which are one of the lowest fiduciary standards. The Principal is the Power Giver and the Agent or Attorney in Fact receives the Power. The FPOA will endure the Principal’s disability, but not the death of the Principal. The Financial Power of Attorney is a useful document, but is totally dependent on the acceptance by third parties.  The Catch 22 of the FPOA is that simple FPOAs may not be broad enough to be accepted, and complex FPOAs may be too broad to be accepted until reviewed by legal counsel. Financial Powers of Attorney do not endure the disability or death of the Agent.  If there is no successor named, there could be a guardianship. 

Revocable Living Trusts

Can help you maintain control of your assets while alive and well, take care of you if you have a disability, and then pass your assets upon your death.  They can contain extensive instructions on how you wish to be taken care of if you suffer a disability.  And, assets titled in the name of the trust can avoid both guardianship and probate, as well as provide asset protection for the next generation’s inheritance. Unlike the Financial Power of Attorney, a trust will not fail for lack of a Trustee, and a well-drafted trust will contain Trustee successor provisions. 

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