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by Kevin McFadden, Esq.
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What is incapacity? At its simplest, this means you are unable to care for yourself, and it is most often determined by a doctor(s). Incapacity can be a mess since as we know, life keeps going whether we are able to deal with it or not. Think of all your many obligations over the course of time and then think about what would happen if you are unable to deal with these issues. This is where I try to assist my clients in preparing for dealing with possible incapacitation.
As an estate planning attorney, my focus on planning for potential incapacity involves mostly, but not exclusively, 3 legal forms:
Durable General Financial Powers of Attorney:
This power of attorney helps to avoid a court-ordered conservatorship over your assets in the event of your incapacitation. Essentially, it appoints an agent to represent you on your behalf on most legal matters, including tax, contracts, accounts, investments and so on. While some power can be limited, most are general (thus the term General Powers of Attorney) and intended as all encompassing.
What is meant by the term Durable? Financial powers of attorney can be durable or non-durable. Durable means the agent can still use the power of attorney after the person who created it becomes incapacitated. From my perspective, I cannot think of a better situation when you want a Powers of Attorney than those times when you are unable to handle your own affairs. Since that is the purpose of this article, we will refer only to this type of financial power of attorney.
Health Care Powers of Attorney and Living Will:
A Power of Attorney for Health Care allows your agent to make medical decisions on your behalf in lieu of your own ability to make decisions concerning your desires for specific medical procedures, such as surgery or other medical treatment, in the event you are unable to do so.
The Living Will sets forth your desires with regard to being kept alive or having your life prolonged by artificial means when you have a terminal illness or are in a comatose state and all natural hope of your recovery has been exhausted. Since that is not the purpose of this article, I will leave further discussion of Living Wills for another day.
First, let me do a little background on what a trust is before I discuss its purpose in planning for incapacity.
A "Revocable Trust" is also called a "Living Trust" or a "Family Trust." Trusts are used in a similar way that people use a Last Will & Testament, but a trust has a lot more bells and whistles. From here on, I will just call it a "trust".
A trust is usually created by an agreement. The person that expresses his or her wishes in the agreement is called the grantor (or settlor). Usually this same person is the Trustee, a type of manager of trust affairs. And finally, all trusts must have a beneficiary, again very likely the same person or persons. This person then puts all his or her assets into this trust. The grantor still has control over the trust assets and the ability to change or terminate the trust at any time. Let me make it clear here that the person that sets up the trust and puts his or her assets into the trust almost always is the only beneficiary with complete control over the assets. Family members, other than a spouse or partner, are not in the picture at all until the person passes away.
Here is where it helps with incapacity. If someone becomes unable to take care of him or herself, the successor trustee appointed in the trust can step in to take care of the incapacitated person by accessing his or her assets in the trust for their care. You don't get this with a will. Ultimately, when the person dies, the successor trustee passes the trust property to the children or other estate beneficiaries according to the grantor's objectives. But until then, if the grantor is unable to care for him or herself, this trustee can monitor the investments, access funds, and deal with the financial responsibilities of the grantor.
The question often comes up, Why do you need a trust AND a financial powers of attorney if both of these documents seem to do the same thing? Yes, they seem similar but the financial matters they address are different. For example, if I have a trust and I have a CD in the name of the trust, then the trustee will access the CD to pay my quarterly tax payments if I am unable to do so.
Same example, but lets say the person does not have a trust or the CD is in the person's individual name, then the agent under the power of attorney can go to the bank and gain access to the CD in order to make these same payments. Trustees will access any accounts that are in the name of the trust for the betterment of the incapacitated individual. All other legal, tax, contract, and other matters will likely be handled by the agent under the power of attorney. Can you see why I like for the person that is the trustee to also be the agent under the power of attorney?
Sure, there may be other documents that are necessary, and one form does not fit all in this circumstance, but these documents are a core part of my conversation in addressing client concerns for their possible incapacity.
