ESTATE PLANNING  -  INCAPACITY
 
 

Many older persons and their families worry about the possible onset of a physical or mental disability. In particular, they fear that the management of their assets and decisions about their health care may be taken out of their hands without regard to their personal preferences. With some advance planning, however, you can evaluate the options that are available to prepare for incapacity as well as arrange for the legal instruments necessary to carry out your wishes. Because no one can anticipate the onset of a physical or mental disability, no matter what your age you should prepare the necessary documents that address the problems of incapacity.

Several techniques may be helpful in making and implementing decisions concerning the management of your property in advance of incapacity. You may appoint a guardian or conservator to manage the person and/or the property of an incapacitated individual. If advance preparations are not made, a court may appoint a guardian or conservator to manage the person and/or property of an incapacitated individual. The appointment follows a hearing at which the individual is declared incompetent. This is certainly the least desirable way to deal with incapacity. Instead you should take action in advance to ensure the fulfillment of your wishes in the event of incapacity. You may want to use a durable power of attorney to designate an agent to act on behalf of you during incapacity. Alternatively, a revocable living trust allows the grantor to manage his or her affairs until incapacity. At that time, the trust becomes irrevocable and is thereafter managed by the trustee. These so-called living trusts may also allow for the management of the property after death and can avoid the probate process. With respect to
durable powers of attorney, you may wish to draft separate durable powers of attorney for health care and asset management decisions.

Here, in a nutshell, are the pitfalls of failing to prepare for incapacity. Should a court judge an adult incompetent to manage his or her affairs because of an accident, illness, or senility, the court may revoke his or her right to do so and appoint a guardian. It is quite possible that the court will not appoint the guardian that the now-incapacitated individual would have chosen. Moreover, the difficulties in securing court approval of the guardian’s actions under these circumstances will create undue red tape and confusion.

Improvements in geriatric care have increased life expectancy, but, in many instances, this has also increased the likelihood that an elderly person may become incapable of managing his or her personal or financial affairs. A particularly disturbing outcome of this trend is that some children, other relatives, or friends, anxious to gain access to an elderly person’s resources, will go to court in an attempt to have his or her judged incompetent. The result may well be that the court appoints the scheming
friend or relative as guardian.

As mentioned above, there are basically two ways to protect assets and ensure that they will continue to be managed as you see fit in the event you become incapacitated. You can either assign a power of attorney to a trustworthy individual or establish a living trust.

Power of Attorney

A power of attorney is a written agreement that allows a trusted individual (i.e., the attorney-in-fact) to act on behalf of the principal (i.e., the person who created the power of attorney). A power of attorney may be either special, applying to only certain situations, or general, giving the attorney-in-fact virtually limitless control over the principal. A power of attorney may also be either indefinite or for a specific length of time. The power of attorney is used for those situations in which the principal is incapable of carrying out his or her own financial, legal, or other responsibilities. Examples are recovering from a heart attack, taking an extended vacation, or being unexpectedly detained from home or office.

The power of attorney is important in the case of incompetence or other permanent disability, however, only durable powers of attorney are applicable in the case of incompetence, and some states do not recognize durable powers of attorney, thereby defeating their whole purpose. Under such circumstances, it may be best to use a living trust to obtain the objectives of guardianship. If you decide to use a power of attorney, however, you should avoid general powers of attorney because they are dangerous, subject to abuse, and unnecessary. Individuals who appoint a power of attorney should provide for a succession of attorneys in-fact in the event your preferred choice is unable or unwilling to serve.

If you reside in more than one state or take extended vacations to another state, you may need two or more durable powers of attorney, each of which conforms to the particular regulations of the particular state. A power of attorney can be canceled any time and, according to all states laws, terminates immediately upon the death of the principal.

Living Trusts

Another way that you can ensure proper care of yourself and your estate is to create a living trust to hold the property, naming yourself as the principal beneficiary. Regardless of your age or mental condition, the trustee is legally bound to act in the beneficiary’s best interests according to the trust’s instructions. The attorney who helps you draft a living trust may recommend that you specify the procedures that should be taken to determine incompetency. For example, you can state that your family
physician will make such a determination. This procedure generally eliminates the cost and expense of court proceedings. You can insert the same language into a durable power of attorney as well.

To increase the likelihood that your wishes will be carried out in the event you are judged incompetent, you should prepare a written statement of your wishes addressed to the guardian or trustee who, while though not legally bound to follow them, may do so on your behalf.