Estate planning typically focuses primarily on how assets will be distributed after death. While you undoubtedly want to make decisions about the distribution of your estate assets after you are gone, your estate plan should also address the possibility of the need to manage your assets while you are still here. Toward that end, a Los Angeles estate planning attorney at Collins Law Firm discusses alternatives for managing property when you are incapacitated.
The Reality of Incapacity
When the subject of incapacity planning comes up, most people fail to understand the need to plan for the possibility of their own incapacity. The reason for this is that most people equate the likelihood of incapacity with old age. While it is true that the risk of becoming incapacitated increases as you age, the possibility of becoming incapacitated is not limited to the elderly. The reality is that incapacity can strike anyone at any time. In fact, throughout your working years (prior to age 65), you stand a one in five chance of suffering a period of disability that lasts for five months or more. Knowing that incapacity is possible at any age, ask yourself if you were to become incapacitated tomorrow, who would take over the management and control of your assets? Possibly of more importance, does that person have the legal authority necessary to step in and take over control? If you do not immediately know the answers to those questions it is time to seriously consider the need for incapacity planning.
Managing Property While You Are Incapacitated
If you cannot manage your assets, for any reason, someone must do it for you. That person must also have the legal authority necessary to step in and take over. There are several ways in which that authority can be granted, including:
- Jointly owned property – you may own property jointly with your spouse or you could co-own assets with a parent or adult child as well with friends or business partners. When you own property jointly, one benefit is that the co-owners have the authority to manage the assets in your absence; however, they may not have the legal authority to sell or encumber assets if that becomes necessary for any reason.
- Power of Attorney – a Power of Attorney (POA) is a legal document that allows you (the Principal) to grant another person (the Agent) the legal authority to act on your behalf in legal transactions. A POA can be general or limited. If you executed a general POA is will allow the Agent to manage your property during a period of incapacity if it is also a durable POA. Making a POA durable simply means that the authority granted in the document survives the incapacity of the Principal. If you executed a limited POA, the assets involved would need to be specifically mentioned in the POA and it would need to be a durable POA. While a POS is better than nothing when it comes to managing property during incapacity, it is also less than ideal because of its limitations and because third-parties often question an Agent’s authority.
- Revocable living trust – a revocable living trust is among the most popular of all incapacity planning tools. It works by allowing you to appoint yourself as the Trustee of the trust you create and then transferring your assets into the trust. You also appoint the person you wish to take over control of your assets in the event of your incapacity as the Successor Trustee. If you become incapacitated, your designated successor is automatically elevated to the position of Trustee where he/she can control all the assets held in the trust for the duration of your incapacity.
- Guardianship – guardianship is the option of last resort; however, if you fail to plan ahead for the possibility of your own incapacity, someone may be forced to petition a court to become the guardian of your estate. As your guardian, the court would grant the individual the authority necessary to manage your legal affairs and control your assets. Keep in mind that if a guardianship becomes necessary, you will have no input into who is appointed as your guardian. Consequently, you have no idea – and no control – over how your assets are managed while you are incapacitated.
Contact a Los Angeles Estate Planning Attorney
For more information, please join us for an upcoming FREE webinar. If you have additional questions about how to manage property during incapacity, contact a Los Angeles estate planning attorney. Contact the Collins Law Firm by calling (310) 677-9787 to register for one of our FREE estate planning workshops.