The short answer is “yes.” In fact, if you are relatively young and healthy you probably need to be more worried about a period of incapacity than you do death. Up to about age 40 you are three times more likely to become incapacitated than you are to die. One in four of today’s 20-year-olds can expect to be out of work for at least a year because of a disabling condition before they reach retirement age. Because you undoubtedly care what happens to you and your assets if incapacity does strike, it is imperative that you plan for that possibility.
This common misconception is precisely why many people fail to plan for incapacity. The reality is that even if you are married there is no guarantee that it will be your spouse making serious, even life or death, healthcare decisions for you if you are unable to make them because of incapacity. All too often more than one family member believes that he/she should be the one making those decisions and the right to make them ends up in a court battle – a battle that could result in a family feud that leaves lasting scars.
The same problem could occur when it comes to control over your assets during a period of incapacity. In the absence of a plan that gives someone the legal right to control your assets, a court will likely be forced to appoint someone. That person may – or may not – be someone you would want taking over control of your assets.
By incorporating an incapacity plan into your comprehensive estate plan you are able to use legal strategies and tools that collectively determine who will control your assets and make important decisions for you in the event you are ever incapacitated. It allows you to make crucial decisions now instead of a judge making them for you later or deciding who will make them for you.
A Power of Attorney is a legal agreement that allows you (the “Principal”) to grant another person (your “Agent”) the legal authority to act in your place in legal matters. That authority can be general, allowing your Agent almost unfettered power to act on your behalf, or limited, only granting your Agent the authority to act on your behalf in specific situations or for a designated period of time. While a Power of Attorney can be a helpful incapacity planning tool, it has some drawbacks, including the risk that third parties won’t accept your Agent’s authority. It also has some limitations because even a general POA won’t usually cover all situations. Most states, for example, require you to execute a specific type of document to give someone the legal authority to make healthcare decisions for you.
An advance directive is a legal document that allows you to plan ahead and make your own end-of life wishes known in the event that you are unable to communicate those wishes at some later time and/or appoint someone to make decisions for you. State law dictates what types of advance directives are recognized in the state. California recognizes two types of advanced directives, including:
- Power of Attorney for Health Care which allows you to appoint someone to make health care decisions for you if your primary doctor determines that you lack the ability to understand the nature and consequences of your health care decisions or the ability to make and communicate your health care decisions.
- Individual Instructions which is California’s version of a Living Will. In this you can state your wishes with regard to health care in the event you can no longer speak for yourself.
One of the most commonly used incapacity planning tools is a revocable living trust. When used to plan for the possibility of incapacity it works by allowing you to appoint yourself as the Trustee of the trust and appoint someone of your choosing as the successor Trustee. Your estate assets are then transferred into the trust. Because you are the Trustee, you continue to control those assets just as before; however, if you become incapacitated the successor Trustee (chosen by you) takes over as Trustee, thereby shifting control of your assets to the person of your choice without the need for court intervention. Moreover, when you recover you can resume your position as Trustee as if nothing happened. Finally, because the trust is revocable, you can move assets in and out of the trust with ease and even replace the successor Trustee if you wish to do so at any time.
Watching a parent’s mental and/or physical deterioration is heart-wrenching. If you have a parent who has become incapacitated, as a result of Alzheimer’s or simply the natural aging process, seeking conservatorship may be your only option if you wish to keep your parent and his/her assets safe. A conservatorship is a relationship established by a court of law between the person who needs help, referred to as the “ward,” and the person or entity named by the court to help the ward, known as the “conservator.” Considered the option of last resort, court’s don’t like to order a conservatorship unless it is absolutely necessary because it is the most restrictive option. To prevent putting your kids in the position where they have to consider petitioning for conservatorship over you when you get older, you should incorporate an incapacity planning component into your estate plan now.