What Estate Planning Documents are Used to Plan for Incapacity?
The chief reason for a Power of Attorney (POA) is to appoint an agent who can make decisions about business and financial matters if you become incapacitated, according to an article “Estate planning in case of incapacity” from The Sentinel-Record. For most people, the POA becomes effective at a later date, when the person signs a written authorization to act under the document, or when the person is determined to be incapacitated. This often involves having the person’s treating physician sign a notarized statement declaring the person to be incapacitated. This type of POA is referred to as a “Springing POA,” since it springs from a future event.
The challenge with a springing POA is that it requires reaching a point in the person’s life where it is clinically clear they are incapacitated. If the person has not yet been diagnosed with Alzheimer’s disease or another form of dementia, but it is making poor decisions or not able to care for themselves, it becomes necessary to go through the process of documenting their incapacity and going through the state’s process to activate the POA.
For a more immediate POA, your estate planning attorney may recommend creating and signing a Durable Power of Attorney. This allows you to appoint someone to manage personal and business affairs immediately. For this reason, it is extremely important that the person you name be 100% trustworthy, since they will have instant legal access to all of your property.
A Power of Attorney can be customized to include broad powers or limited to a specific transaction, like selling your home.
This is not the only way to allow another person to take over your affairs in the event of incapacity. However, it is easier than seeking guardianship or conservatorship. Another method is to place assets in a revocable trust, which allows you to maintain control of the assets while alive and of legal capacity. The trust includes a successor trustee, who takes over in the event you become incapacitated or die.
The successor trustee only has control of the assets owned by the trust, so if the purpose of the trust is planning for incapacity, many, if not all, of your assets will need to be retitled and put into the trust.
A properly created estate plan will often use both the Durable Power of Attorney and a Revocable Living Trust, when preparing for incapacity.
Sadly, many people fail to have these legal tools created. As a result, when they are incapacitated, the family must go to court to have a person appointed to manage their affairs. This is usually referred to as a “interdiction” (called “legal guardianship” in states other than Louisiana). The proceeding to obtain an interdiction is lengthy and complicated. Once the interdiction is established, the curator (the person appointed as “guardian” over the disabled person) must file annual accountings with the court documenting how all of the funds are used. The curator in many cases must also post a surety bond, designed to protect assets in case of improper use.
Interdiction and its costs and time-consuming tasks can all be avoided with a properly prepared estate plan, including planning for incapacity.
Keep in mind that even with a Power of Attorney, if your Power of Attorney is not broad enough to allow your powerholder to engage in the kind of planning on your behalf to qualify you for government benefits, you may still be required to go through the interdiction process. That is why not all Powers of Attorney are equal. You should have a good Power of Attorney drafted by a good Elder Law attorney to serve this purpose.
BOOK A CALL with me, Ted Vicknair, Board Certified Estate Planning and Administration Specialist, Board Certified Tax Law Specialist, and CPA to learn more about estate planning, incapacity planning, and asset protection.
If you liked this article, “What Estate Planning Documents are Used to Plan for Incapacity?” read also these additional articles: Special Needs Planning and What Needs to Be Reviewed in Estate Plan? and Researchers Look to Reduce the Risk Of Women Developing Dementia and How Do I Use Deceased Spouse’s Life Insurance?
Reference: The Sentinel-Record (March 27, 2022) “Estate planning in case of incapacity”