Estate Planning for Incapacity

In my previous article I have reminded you that estate planning isn’t just about who will get your assets on your death, it’s also about who will manage your assets and take care of you and your financial affairs if you become incapacitated. With proper planning, you decide; without proper planning a court may get to make the choice.

What do we mean by “incapacitated?” Generally speaking, we are referring to a situation where you are unable to make decisions for yourself. Incapacity can result from an accident or arise from health issues, such as stroke, heart attack or dementia. If you are alive but can’t take care of your financial matters, a Will doesn’t help you – it’s only effective upon your death. You may have a power of attorney in place and believe this planning tool will effectively handle your affairs. But a power of attorney in Arizona only goes so far and often they are poorly written. Many clients who bring in their estate planning documents for review show me a power of attorney that is barely better than nothing at all. If there is a problem with your power of attorney, or you don’t have one, or someone that holds your assets (like a bank) will not accept what you have signed, a probate court will have to appoint someone to manage those assets for you.

While you would probably prefer that your spouse or life partner manage your assets if you become incapacitated, the court will decide who will act for you. This can be a very big issue for unmarried couples. While the court may appoint your partner, it could also appoint a relative, and that may be the last thing you want or need. For a single person, it isn’t always obvious who should be appointed. And if the obvious choice is a sibling or an adult child who is terrible with finances, you certainly don’t want that person handling your money and property while you are
incapacitated!

The public proceedings to have someone appointed are called guardianship and conservatorship. It can be expensive, embarrassing, time consuming, and difficult to end. It does not replace probate at death so unless you plan ahead, your loved ones could have to go through the probate court system twice.

What do we do to plan for incapacity? The best way is with a Revocable Living Trust. When you set up a Revocable Living Trust, you transfer assets from your name to the name of your trust where you control them as the trustee. You name whoever you wish to take over as successor trustee upon incapacity and at death. That person steps into your shoes to take care of your financial affairs, without a court appointing them, without court intervention, and without the court making decisions about how your money is spent. If and when you recover, you resume
your role as trustee of your trust.

The Revocable Living Trust is a great way to address incapacity and works hand in hand with your durable financial power of attorney. The Revocable Living Trust:

• Is readily accepted by financial institutions
• provides detailed instructions and directions
• holds a successor trustee to a high fiduciary standard
• allows your successor trustee to quickly and efficiently begin managing your assets to care for you and your finances.

But what about your health care decisions if you are unable to make them because of incapacity? You need three additional documents to assure you will be taken care of by those you want to be the decision makers. Those documents, called advance medical directives, include a Healthcare Power of Attorney (sometimes also called a Health Care Proxy), a Living Will or advance end of life directive, and a HIPAA Authorization. These documents work together to allow your chosen person to direct your health care if you become incapacitated. These are important
documents for every adult to have.

If you have these documents, wonderful! But be sure you are keeping them up to date. It’s a good idea to review your estate plan periodically and make sure it still meets your needs and desires, and is not so old that a healthcare provider will challenge whether they are still valid. Take advantage of my complimentary review or initial consultation. I can be reached at 602-375-6752, or through my website, www.LibbyBanks.com.