Planning for Incapacity
estimated reading time 4 minutes 58 seconds
Incapacity — it’s a scenario few of us wish to consider. But what would happen if you were mentally or physically unable to take care of yourself or your day-to-day affairs? You might not be able to make sound decisions about your health or finances. You could lose the ability to pay bills, write checks, manage assets, or otherwise conduct your affairs. Unless you’re prepared, incapacity could devastate your family, exhaust your savings, and undermine your financial, tax, and estate planning strategies. As difficult as it might be, planning ahead can ensure that your healthcare wishes will be carried out and that your finances will continue to be managed.
Here are the key takeaways that will support you in this process:
● Why be prepared?
● Make your wishes are known
● Protect your property
Why Be Prepared?
Incapacity can strike anyone at any time. Advancing age can bring senility, Alzheimer’s disease, or other ailments, and a serious illness or accident can happen suddenly at any age. Even with today’s medical miracles, it’s a real possibility that you or your spouse could one day become incapable of handling your own medical or financial affairs. If you become incapacitated without the proper plans and documentation in place, a relative or friend will have to ask the court to appoint a guardian for you. Petitioning the court for guardianship is an arduous procedure that can be emotionally draining, time-consuming, and expensive. More importantly, without instructions from you, a guardian might not make the same decisions you would have made.
Make Your Wishes Known
It is important that you take the time to invest in the creation of legal documents to ensure your wishes are not only known but legally able to be followed. Without legal documents that express your wishes, medical care providers must take action to prolong your life using any means necessary, even artificially. To avoid the possibility of this happening to you, you must have an advance medical directive.
The following section highlights the different tools available to you. Each type has its own purpose, benefits, and drawbacks and may not be effective in some states. You may find that either one, two, or all three types of advance medical directives are necessary in order to carry out all of your wishes for medical treatment. Be sure to have an attorney prepare your medical directives to make sure that you have what you need and that all documents are consistent.
A living will allows you to approve or decline certain types of medical care, even if you will die as a result of the choice. However, in most states, living wills take effect only under certain circumstances, such as terminal injury or illness. Generally, a living will can be used only to decline medical treatment that “serves only to postpone the moment of death.” Even if your state does not allow living wills, you may still want to have one to serve as an expression of your wishes.
A durable power of attorney for health care (known as a healthcare proxy in some states) allows you to appoint a representative to make medical decisions for you. You decide how much power your representative will have.
A Do Not Resuscitate Order or DNR is a doctor’s order that tells all other medical personnel not to perform CPR if you go into cardiac arrest. There are two types of DNRs. One is effective only while you are hospitalized. The other is used while you are outside the hospital.
A durable power of attorney or DPOA allows you to authorize someone else to act on your behalf. There are two types – an immediate DPOA, which is effective immediately, and a springing DPOA, which is not effective until you have become incapacitated. Both DPOA types end at your death. A DPOA should be fairly simple and inexpensive to implement. However, a springing DPOA is not permitted in some states, so you’ll want to check with an attorney.
Protect your property: Without someone to look after your financial affairs when you are unable to, your property could be wasted, abused, or lost. To protect against these possibilities, consider putting in place a revocable living trust, the above-mentioned DPOA, or joint ownership arrangement (or a combination of any or all options).
Revocable Living Trust: You can transfer ownership of your property to a revocable living trust and still maintain complete control of your properties as the named trustee. With a revocable living trust, if you become incapacitated, your successor trustee (the person you named to run the trust if you can’t) automatically steps in and takes over the management of your property. A living trust can survive your death. There are, of course, costs associated with creating and maintaining a trust.
Joint Ownership Arrangement: Another option is a joint ownership arrangement which allows someone else to have immediate access to your property and to use it to meet your needs. Joint ownership is simple and inexpensive to implement. However, there are some disadvantages to the joint ownership arrangement. Some examples include: (1) your co-owner has immediate access to your property regardless of incapacity, (2) you lack the ability to direct the co-owner to use the property for your benefit, (3) naming someone who is not your spouse as co-owner may trigger gift tax consequences, and (4) if you die before the other joint owner, your property interests will pass to the other owner without regard to your own intentions, which may be different.
Despite the fact that these decisions evoke difficult discussions and emotions, the alternative of arriving at this moment unprepared is far worse. Investing the time now can ensure that your wishes are carried forward even when you cannot personally execute them. The information in this blog can act as a checklist of legal documents that can help provide clarity to your loved ones and protect your property and finances.
