Part 1: An Essential Component to a Comprehensive Estate Plan

Many people believe estate planning is only about distributing assets after they die. But comprehensive estate planning also includes preparing for the unthinkable scenario that we become incapacitated before we die. Next week, we’ll discuss how important it is to keep your plan up to date in Part 2: When To Update Your Incapacity Planning Documents, but today we’ll cover the importance of having a plan, as well as outlining some of the available planning tools.

Although we often think of incapacity as dementia in elderly people, it can also result from a car accident, illness, work-place accident, early-onset dementia, or any number of other short or long-term scenarios we don’t see coming. If you are in a car accident and unable to make decisions for yourself, even if only for a few months, who would take care of your minor children, pay your bills, and make personal and healthcare decisions for you until you recover? If you are diagnosed with Alzheimer’s, who would decide where you will live, what care you should receive, and how your finances are managed? If you are a small business owner and suddenly become ill, who would have authority to access your accounts to pay your bills and employees’ salaries until you get back on your feet? We can’t prevent bad things from happening, but we can put our family and finances in the best possible position to handle them if they do.

Planning for Financial Decisions

You can decide who will have authority to make financial decisions and manage assets on your behalf during your incapacity and the scope of their authority. There is no one size fits all approach, but here are a few tools to consider:

  • Revocable Living Trust – The gold standard of any estate plan that is designed for both death and incapacity. Not only do you designate a person (trustee) to handle your assets when you become unable to do so, but you also outline exactly what the trustee can do with those assets.
  • Durable Power of Attorney – A comprehensive tool that designates a trusted person to become your agent and make financial decisions on your behalf. It can become effective immediately or spring into action upon an incapacity diagnosis. It can give broad discretion to the agent or be more limited, depending on the options you choose.
  • Joint Accounts – A tool that gives someone else decision-making authority over a certain account. Holding a joint account with your spouse enables him/her to make decisions while you are incapacitated. But there are also downsides to this being your only planning tool, particularly if you have a joint account with someone other than your spouse, as it gives full access to your account before your incapacity, can cause issues with uneven distribution of your estate upon your death, and is limited to only that account.

Planning for Medical and Personal Decisions

In addition to preparing for financial decisions during incapacity, it is equally important to plan for personal and medical decisions. You can designate someone (or multiple people) to make such decisions for you, and you can also express specific wishes in the event your condition becomes terminal or irreversible.

  • Medical Power of Attorney – Designates a trusted person to make medical decisions on your behalf if you are unable to do so.
  • Directive to Physicians – Expresses your wishes regarding life sustaining treatments and is sometimes called a living will. If you have a medical power of attorney in place, that person will ultimately make the decisions, but he/she can have peace of mind (and less conflict with other family members and friends) when you make your wishes known.
  • Declaration of Guardianship – Expresses your wishes regarding who would serve as guardian of your person and/or estate in the event of your incapacity. There are alternatives to guardianships, but sometimes they are necessary and useful to caring for an incapacitated person, and this document provides your written recommendation to the court for the person you trust to handle your affairs.
  • HIPPA Release – Allows medical professionals to share your otherwise confidential health information with people you designate to receive it, perhaps your spouse, adult children, or trustee, so they can make informed decisions regarding your care.

So why doesn’t everyone plan for incapacity? Besides feeling invincible, maybe they’re afraid that giving someone power over their financial and healthcare decisions makes them more likely to be victimized when they’re already vulnerable. But that’s the point of incapacity planning: YOU get to decide who to trust and how much power to give them. You can also put in safeguards, like naming co-agents or naming different people for financial and medical decisions so that no one person holds too much power.

At TCV, we include incapacity planning as a standard part of our comprehensive estate planning process and can discuss your concerns and objectives to form the plan that is right for you. Whether you need help with your entire estate plan or just your incapacity planning, we look forward to meeting with you!

Rachel Bosworth, Attorney, TCV