When most people here the word “incapacity” the immediately envision an elderly individual who is suffering from an age-related dementia disease such as Alzheimer’s. While many age-related diseases and conditions do cause incapacity the reality is that incapacity can strike anyone, at any age. In fact, studies show that we all have a one in five chance of becoming disabled, either totally or temporarily, before reaching the age of 65. If you become incapacitated, who will manage your property and what legal authority will allow them to manage it?
Sometimes, an illustration is the best way to explain a problem. Imagine that you are divorced with three children. You are involved in a catastrophic car accident tomorrow that leaves you in a coma. Clearly you are unable to manage your assets for the foreseeable future. If you do not have an incapacity plan in place it will likely be unclear who is supposed to be in charge of managing your assets. More importantly, no one will have the legal authority to manage those assets even if someone steps in and offers to do so. If more than one person wants the job it can become an even bigger mess that could turn into a lengthy, and costly, court battle. So what should you do now to prevent his very situation from occurring should you become incapacitated at some point in the future? By including some simple incapacity planning strategies into your overall estate plan you can avoid putting your family and loved ones through the confusion and cost of deciding who will manage your property.
Although every incapacity plan is unique, there are some common strategies used to allow for property manage in the event the property owner becomes incapacitated, including:
- Joint ownership – if a property or account is co-owned with another person that individual will have legal access to the account or property. While this may allow for day to day management it does not allow the individual to sell, lease, or encumber the property should the need arise.
- Power of attorney – a durable power of attorney will survive your incapacity and, therefore, allows the agent the legal authority to act on your behalf with regard to any property you named in the POA.
- Revocable trust – a revocable trust offers the broadest incapacity protection. You can name yourself as the trustee and name someone you trust as the successor trustee. The successor trustee then takes over upon your incapacity and has the legal authority to manage all the assets held by the trust. When you create the trust you can transfer any, or all, of your assets into the trust thereby providing a smooth transition of control over all your assets if you become incapacitated.
Talk to your estate planning attorney about the best incapacity planning strategies for you and your estate plan.