When most people think of estate planning they think of preparing for the distribution of estate assets after death. While deciding what happens to your estate assets when you are gone is certainly an important aspect of an estate plan, a comprehensive estate plan can accomplish much more than that. In fact, a wide range of inter-related estate planning goals can be accomplished with a well thought out estate plan. Incapacity planning, for example, is often incorporated into an estate plan. If you are planning to add an incapacity planning component to your estate plan, you may be wondering what estate planning tools are commonly used in an incapacity plan. Specifically, can a living trust help with incapacity planning?
Do You Need an Incapacity Plan?
When most people think of “incapacity” they envision an elderly person suffering from Alzheimer’s or another old age affliction. While age related conditions certainly can cause incapacity, the reality is that you could become incapacitated tomorrow as a result of a tragic accident or a debilitating illness. In fact, one in five working age (under 65) people will suffer a period of incapacity that lasts five months or longer. If incapacity were to strike tomorrow, do you know who would make important medical treatment decisions for you? Do you know who would take over control of your assets? Who would pay your bills and manage your finances during your period of incapacity? Unless you have an incapacity plan in place the answers to these questions are unknown. In a worst case scenario, your loved ones could end up in a prolonged court battle over the right to make decisions for you and control your assets while you are incapacitated. The way to ensure that this does not happen is to include an incapacity planning component in your comprehensive estate plan.
How Does a Living Trust Fit into Your Incapacity Plan?
There are a number of estate planning tools and strategies that you may choose to utilize in your incapacity plan; however, one of the most common is a living trust. A trust is a relationship whereby property is held by one party for the benefit of another. A trust is created by a Settlor (you), who transfers property to a Trustee. The Trustee holds that property for the trust’s beneficiaries. Trusts are first divided into two categories – testamentary and living trusts. A testamentary trust does not take effect until the death of the Settlor while a living trust activates during the life of the Settlor. Living trusts are then further divided into revocable and irrevocable living trusts. A revocable living trust can be modified or revoked by the Settlor at any time and for any reason while an irrevocable trust cannot.
A revocable living trust is often used as an incapacity planning tool. As the Settlor of the trust you have the ability to appoint yourself as the Trustee of the trust and appoint the person you wish to take over control of your assets in the event of your incapacity as the successor Trustee. Major assets are then transferred into the trust and managed by you as the Trustee as long as you are able to act as the Trustee. If you become incapacitated at any point in time, your successor Trustee automatically takes over as Trustee, resulting in a shift of control over trust assets to the successor Trustee. Using a revocable trust avoids the need for court approval or intervention and ensures that the person you designate will take over the control and management of your assets if you are unable to manage them yourself. Because you create the trust terms, you can even include your own conditions under which the successor Trustee takes over and/or include your own method for determining your own incapacity. Moreover, because a revocable living trust can easily be modified by the Settlor of the trust (you), you can change your successor Trustee at any time if the need arises. For example, if you get divorced you do not have to create a new incapacity plan, you simply need to change your successor Trustee.
For more information, please join us for one of our upcoming free seminars. If you have additional questions or concerns about incapacity planning and/or revocable living trusts, contact the experienced Los Angeles estate planning attorneys at Collins Law Group by calling (310) 677-9787 to schedule an appointment.