Planning for Incapacity

When most people contemplate estate planning, their primary concern is what will happen to their estate when they pass away. However, proper estate planning also provides a plan for what will happen if you become incapacitated. If you become physically and /or mentally incapacitated due to an accident, injury or illness, who will manage your financial affairs or make medical decisions on your behalf? If you have your estate plan in order, your estate planning documents will have considered this contingency and will provide a thorough plan for incapacity.

Living Trust: The successor trustee of your living trust will assume the role and duties of the trustee upon your incapacity. Keep in mind, however, that the successor trustee will only have access and control over those assets that are held in the living trust; if you hold assets outside of your living trust, your successor trustee will not have control over those assets.

General Durable Financial Power of Attorney: Even if you have a living trust, and hold all or most of your assets in your trust, you should also have a financial power of attorney which is durable, meaning it is still valid even if you subsequently lose capacity. The power of attorney will authorize the agent named in the document to manage your financial affairs, including transferring assets into your living trust, signing your tax return, negotiating with insurance companies and financial institutions on your behalf, and making other important financial decisions on your behalf.

Advance Health Care Directive: This document allows you to appoint an agent or agents who will make medical decisions on your behalf. This document will also allow you to specify in advance your preferences regarding medical treatment. For example, you could specify that your primary care physician is to be consulted regarding your treatment, or you could specify that you do not want to be kept permanently dependent on life support if you are in a persistent vegetative state.

What happens if you fail to plan, and you become incapacitated? Unfortunately, estate planning attorneys are often contacted after a family member or loved one has already become incapacitated. If the client lacks the legal capacity to create an estate plan, the alternative is to file for a conservatorship. There are two types of conservatorships in California:

1. Conservatorship of the Person (to authorize the conservator to make medical decisions, arrange housing and care of the conservatee, etc.); and
2. Conservatorship of the Estate (to authorize the conservator to invest the assets of the conservatee, pay the conservatee’s bills, and handle the conservatee’s finances).
   The same person may serve as conservator of the person and of the estate.

Conservatorships require a formal court proceeding and the court will continue to oversee the administration of the conservatorship for as long as the conservatee is incapacitated, or until the conservatee dies. This process is often criticized as it is costly, time consuming, burdensome and subjects information about the conservatee’s finances and mental and physical condition to public scrutiny. With proper advance planning, a conservatorship may be avoided entirely.

Incapacity due to illness, accident or injury can strike at any time. It is advisable to review your estate planning documents to make sure you are adequately protected in the event of incapacity. If you have any questions, please contact me, or feel free to leave a general response to this posting. Thanks for reading.