Many individuals believe that incapacity planning is exclusively for individuals near retirement age and that only the elderly may benefit from this. However, accidents may happen at any moment and leave us mentally and physically unable to function as we had before. A vehicle accident, for example, may put victims in a coma. Additionally, medical events such as a stroke can significantly impair one’s ability to care for themselves, while illnesses like Alzheimer’s erode a person’s mental capability over time. Studies show that most adults will be incapacitated for a period during their lives, some for many years. But if you prepare ahead of time, you can choose a representative to act on your behalf if you cannot handle your affairs. If you do not have a proper incapacity plan ready, others will make this choice for you.
Guardianships Should Be Avoided
The State of Texas has a plan for caring for those who cannot care for themselves. This plan is called guardianship. If you do not make a plan for caring for yourself and your finances when you become incapacitated, a judge who does not know your or your family will decide who cares for you. Under the supervision of the court, this person will choose where you live and how your money is spent. The guardian might be a family member (possibly one you do not want in charge of you) or a stranger. Regardless of who the court chooses, your medical condition and your finances will become a public record. In addition, the court’s staff will be involved in your and your family’s business for the remainder of your life. Most of a guardian’s decisions must be approved by the court. Therefore, the cost of a guardianship can be astronomical. Annual accountings, multiple hearings, and court-appointed professionals will drive up the cost of caring for you over time. A routine guardianship of the person and estate can run into the tens of thousands of dollars. On the contrary, a person can put a well-drafted incapacity strategy in place for much less. Moreover, you may choose who oversees your personal care and your finances instead of a stranger deciding these things. This puts you in charge, even after you are incapacitated, and helps prevent disagreement between family members over who should make decisions for you. Two of the best incapacitation strategies are making a power of attorney and creating a living trust.
Making a Power of Attorney
A durable power of attorney is a legal instrument that appoints someone to act on your behalf if you become incapacitated. This individual, sometimes known as an “attorney-in-fact” or “agent,” will be in charge of making financial choices, such as managing your debts and assets. While you are mentally competent, you have the authority to tell your agent how you want them to behave if you become disabled. Your attorney-in-fact, despite its name, does not have to be a lawyer; in reality, agents are seldom lawyers. They must, however, be someone you can rely on and who will not abuse or ignore their duties.A medical power of attorney is the legal instrument that allows you to appoint an agent to make medical decisions for you when you become incapacitated. The medical power of attorney takes effect only when you are no longer competent and allows your agent to communicate with your doctors and decide on the best course of care for you. When it comes to medical and financial issues, one person may not always be the best option. Medical and financial powers of attorney are written as separate agreements, and you may assign tasks to different people as you see appropriate. If you appoint a single person to act on your behalf, it is a good idea to name a backup. If the attorney-in-fact dies, you will still have a representation to carry out your desires. The agents you designate to act on your behalf will have more time to comprehend and prepare for their obligations if you make these decisions and prepare ahead.
Setting up a living trust as part of incapacity planning
A revocable living trust is a planning instrument that may be used to transfer control of your assets to someone you choose in the case of your incapacity. As the trustor (founder) of the trust, you have the power to designate yourself as the trustee and designate someone you choose to manage your assets if you become incapacitated as the successor or trustee. Once the trust has been created, all substantial assets should be transferred to it. As the trustee of the trust, you control and manage those assets for as long as you are competent. If you become incapacitated, the trust assets are managed by your appointed replacement trustee until you can resume your role as trustee. Because the trust is revocable, you may alter it and transfer assets in and out of it. You may even make up your definition of “incapacity” and criteria for assessing whether you are incapacitated. Finally, if you want to make the trust a dual-purpose estate planning instrument, you may add instructions on how to transfer the trust assets after your death.