Estate planning is not only about having a plan in place to deal with what happens at your death, it is also about having a plan in place to deal with what happens if you become mentally incapacitated. In this issue you will learn:
If you have any questions about incapacity planning or have a client who needs to make or update their incapacity documents, please call our office now.
Mental incapacity caused by an accident, injury, or illness results in clients being incapable of making informed decisions about their finances and well-being. Without a comprehensive incapacity plan in place, a judge can appoint someone to take control of an incapacitated client’s assets and make all personal and medical decisions on the client’s behalf under a court-supervised guardianship or conservatorship. The client and the client’s loved ones often lose valuable time, money, and control until the client either regains capacity or dies.
Planning Tip: Many clients may believe they are protected if they become mentally incapacitated because they hold their assets in joint names with a spouse, a child, or another family member. While a joint account holder may be able to access a bank account to pay bills or access a brokerage account to manage investments, a joint owner of real estate will not be able to mortgage or sell the property without the consent of all other owners. Aside from this, adding names to accounts or real estate titles may be deemed a gift for gift tax purposes. In addition, if a joint owner is sued, the property could be seized as part of a judgment entered against them. Only a comprehensive incapacity plan will protect the client and the client’s assets from a court-supervised guardianship or conservatorship and the misdeeds of a joint owner.
There are two essential legal documents for managing finances that must be in place prior to becoming incapacitated:
Planning Tip: To be part of an effective incapacity plan, a Revocable Living Trust should contain provisions to determine the mental status of the Trustmaker/Trustee/Beneficiary through a private process (i.e., a disability panel, an attending physician, the opinion of two physicians, or some other method) instead of a public court process. In addition, the trust agreement should contain specific instructions about how to take care of an incapacitated Trustmaker/Beneficiary.
There are three essential legal documents for making health care decisions that must be in place prior to becoming incapacitated:
Planning Tip: A client’s loved ones may be denied access to medical information during a crisis situation and end up in court fighting over what medical treatment the client should, or should not, receive (like Terri Schiavo’s husband and parents did, for 15 years). Without these three documents, a judge may also appoint a Guardian or Conservator of the Person to oversee the client’s health care, thereby adding further expense and hassle to the court-supervised guardianship or conservatorship. Clients should have these three documents examined and updated frequently to ensure they accurately reflect their wishes.
There are two very important decisions you must make when putting together your incapacity plan:
Factors you should consider when deciding who to name as your financial agent and health care agent include:
Planning Tip: Choosing the wrong person to serve as financial or health care agent will result in an ineffective incapacity plan. You can pick different people to fill each role, that is, one person in charge of health care decisions and someone else in charge of financial matters. In order to create an effective plan, you need to carefully consider who to choose as your agent and then discuss your decision with that person to confirm that they will in fact be willing and able to serve.
As time passes by and your life changes, your incapacity plan will become stale and outdated. It is important for you to have your incapacity plan reviewed every few years or after a major life event (such as a divorce or a death) to insure that the plan will work the way you intend it to work if it is ever needed.
Please contact our office to discuss your questions about incapacity planning and to schedule your plan review.