Estate Planning: It's No Longer Just About Death and Taxes

Estate planning is definitely not only for the wealthy. It's not just about having a plan in place to deal with what happens after a death, but more importantly about having a plan in place to deal with what happens if you or someone you love becomes mentally or physically incapacitated.  It's important to know and learn:  

  • What happens to you and your family without an incapacity plan.
  • The essential documents for managing finances during incapacity.
  • The essential documents for making health care decisions during incapacity.
  • How to choose the right person for managing finances and making health care decisions during incapacity.
  • The importance of keeping an incapacity plan up to date.

Court-Supervised Guardianship or Conservatorship:  How to Lose Time, Money, and Control During Incapacity
Incapacity caused by an accident, injury, or illness results in an individual being incapable of making informed decisions about their finances and well-being.  Without a comprehensive incapacity plan in place, a judge (not your family or friend) can appoint someone to take control of the incapacitated person's assets and make all personal, financial and medical decisions on the individual’s behalf under a court-supervised guardianship or conservatorship. The individual and his/her loved ones often lose valuable time, money, and control until the individual either regains capacity or dies. 

Planning Tip:  Many people simply believe they are protected if they become incapacitated because they hold their assets in joint names with a spouse, a child, or another family member.  While a joint account holder may access a bank account to pay bills or access a brokerage account to manage investments, a joint owner of real estate will not be able to mortgage or sell the property without the consent of the joint owner(s).  Aside from this, adding names to accounts or real estate titles may be deemed a gift for gift tax purposes.  In addition, if a joint owner is sued or getting a divorce, the property could be seized as part of a judgment entered against them.  Only a comprehensive incapacity plan will protect the individual and his/her assets from a court-supervised guardianship or conservatorship and the misdeeds of a joint owner.

The Essential Document for Financial Management During Incapacity
There is one (1) essential legal document for managing finances that should be in place prior to becoming incapacitated:

1.      Financial Power of Attorney.  This legal document gives your Financial Power of Attorney (an agent) the authority to pay bills, make financial decisions, manage investments, file tax returns, mortgage and sell real estate, and address other financial matters that are described in the document.   Powers of Attorney come in two forms:  “Durable” and “Springing.”  A Durable Power of Attorney goes into effect as soon as it is signed, while a Springing Power of Attorney only goes into effect after the person who has made the document is determined to be incapacitated.

Planning Tip:  For parents of young children, the Power of Attorney document can also provide Guardianship of your young children should both parents be incapacitated simultaneously.


The Three Must-Have Documents for Health Care Decision-Making
There are three (3) essential legal documents for making health care decisions that must be in place prior to becoming incapacitated:

1.      Health Care Power of Attorney.  This legal document, also called an Advance Directive or Medical or Health Care Proxy, gives your Health Care Power of Attorney the authority to make health care decisions if the person signing the document becomes incapacitated.

2.      Living Will.  This legal document gives your Health Care Power of Attorney the authority to make life-sustaining or life-ending decisions if the person signing the document becomes incapacitated.

3.      HIPAA Authorization.  Federal and state laws dictates who can receive your medical information without the written consent of the patient.  This legal document gives a doctor or other health care provider the authority to disclose medical information to the family and friends selected by the patient.

Planning Tip:  Your loved ones may be denied access to medical information during a crisis situation and end up in court fighting over what medical treatment the individual should, or should not, receive (like Terri Schiavo’s husband and parents did, for 15 long years).  Without these three (3) documents, a judge may also appoint a Guardian or Conservator of the Person to oversee the individual's health care, thereby adding further expense and hassle to the court-supervised guardianship or conservatorship. One should have these three (3) documents examined and updated frequently to ensure they accurately reflect your current situation and wishes.

How to Choose the Right Power of Attorney for an Incapacity Plan
There are two (2) very important decisions one must make when putting together their incapacity plan:

  1. Who will be in charge of managing their finances during incapacity; and
  2. Who will be in charge of making their medical decisions during incapacity.

Factors to consider when deciding who to name as Power of Attorney (Financial and Health Care) include: 

  • Where does the agent live?  With modern technology, the distance between the client and the agent does not matter as much.  Nonetheless, someone who lives close by may be a better choice than someone who lives in another state or country.
  • How busy is the agent?  If the agent has a demanding job or travels frequently for work, then the agent may not have time to take care of the client’s finances and medical needs.
  • Does the agent have expertise in managing finances or the health care field?  An agent with work experience in finances or medicine may be a better choice than an agent without it.

Planning Tip:  Remember, the best person to be your agent may not be your spouse or children.
In order to create an effective plan, one needs to carefully consider who to choose as their Power of Attorney and then discuss their decision with that person to confirm that they will in fact be willing and able to serve when that time comes.  Also, name a back-up person(s) in case your primary agent is not available.


Are Your Estate Planning and Incapacity Plans Up to Date?
As time passes by and your lives change, your estate planning and incapacity plans could become stale and outdated.  It's important to have your plans reviewed every few years or after a major life event, especially after a death or divorce to insure that the plan will work the way you intend it to work if it is ever needed.

Please contact our office to discuss your questions about incapacity planning and to schedule estate plan review.

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