Comprehensive estate planning involves more than just planning for your legacy after your death, avoiding probate, and reducing taxes. Good estate planning also includes planning for incapacity. An incapacity plan will appoint people to make legal, financial, and medical decisions for you if you are alive but unable to make those decisions for yourself (in other words, if you are incapacitated).
What happens without a plan for incapacity?
Without a comprehensive plan for your incapacity, your family will have to go to court to have a judge appoint a guardian and conservator to make healthcare decisions for you and manage your money and property. A guardian will make all personal and medical decisions on your behalf as part of a court-supervised guardianship. A conservator will make all financial and legal decisions on your behalf as part of a court-supervised conservatorship. Keep in mind that the court may not appoint the person or people for these roles that you would have chosen. Until you regain capacity or pass away, you and your loved ones will have to endure expensive, public, and time-consuming court proceedings, which may include filing annual reports and obtaining prior judicial approval for certain actions.
Overall, there are two aspects of incapacity planning that must be considered: financial and healthcare.
Finances during incapacity.
If you are incapacitated, you are legally unable to make financial, investment, or tax decisions for yourself, but your bills still need to be paid, tax returns still need to be filed, and investments still need to be managed.
Healthcare during incapacity.
If you are unable to communicate (for example, if you are in a coma or under anesthesia), you will not be able to make healthcare decisions for yourself. Without a plan, your loved ones may even be denied access to your medical information during a medical emergency. They may also end up in court, fighting over what medical treatment you should or should not receive (like in the case of Terri Schiavo, whose husband and parents did for 15 years).
To avoid these problems, you should have these five essential legal documents in place before becoming incapacitated so that your loved ones are empowered to make decisions for you:
1. Financial power of attorney.
A financial power of attorney is a legal document that will give your trusted decision-maker (the agent) the authority to pay bills. They can make financial decisions, manage investments, file tax returns, mortgage and sell real estate, and address other financial matters for you that are described in the document. Financial powers of attorney come in two forms: immediate and springing. An immediate durable POA allows your agent to act for you as soon as you sign the document. A springing POA is legally valid when you sign it, but your agent can only act for you after determining that you are mentally incapacitated. It is important to note that some states, such as Florida, do not recognize springing financial powers of attorney. There are advantages and disadvantages to each type, and we can help you decide which is best for your situation.
2. Revocable living trust.
A revocable living trust is a legal document that has three parties to it: the person who creates the trust (also known as the trustmaker); the person who legally owns and manages the accounts and property transferred into the trust (the trustee); and the person who benefits from the accounts and property transferred into the trust (the beneficiary). In the typical situation, you will be the trustmaker, the trustee, and the beneficiary of your revocable living trust while you are alive. If you ever become incapacitated, your designated backup trustee will step in to manage the trust’s accounts and property for your benefit. The trust you create will specify how to use its accounts and property. For example, you can authorize the trustee to continue to make gifts to charities or pay tuition for your grandchildren.
3. Medical power of attorney.
A medical power of attorney, also called a medical proxy, healthcare proxy, designation of healthcare surrogate, or a patient advocate designation, allows you to name a person (your agent) to make medical decisions on your behalf when you cannot communicate them yourself.
4. Advanced directive or living will.
An advance directive or living will shares your wishes regarding end-of-life care if you become incapacitated. Although a living will is not necessarily enforceable in all states, it can provide meaningful information about your desires—even if it is not strictly enforceable.
5. HIPAA authorization.
A Health Insurance Portability and Accountability Act authorization gives your doctor authority to disclose medical information to the people you name in the document. This is important because health privacy laws may make it very difficult for family members or loved ones to learn about your condition without this release. While this document does not give a person authority to make medical decisions, it can help alleviate tensions by keeping everyone on the same page concerning your condition.
Is your incapacity plan up to date?
Once you create all of these legal documents for your incapacity plan, you cannot simply stick them in a drawer and forget about them. Instead, update and review your incapacity plan periodically. If you keep your incapacity plan up-to-date and make the documents available to your loved ones and trusted helpers, it should work the way you expect it to if needed. If you need to create or update your incapacity plan, please give us a call.
Thank you for taking the time to read our blog! We hope you found the information insightful and helpful and invite you to check out the rest of our blogs and share with someone you think would benefit from this information.
If you’re considering working with our team at Rincker Law, we’d love to hear from you. Please feel free to reach out via our contact page to get in touch. We look forward to the opportunity to assist you with excellent, detail oriented, consistent service.