What Is Incapacity Planning In Estate Planning?
Most people think of estate planning as merely planning about what happens when you die. However, you should also take into account what should happen if you are sick, disabled, incapacitated, and you no longer can handle your financial affairs. It’s that bridge between you being able to do everything possible financially and your death. It’s that grey area that could occur in your later years where you may not have full function, ability, perception, decision-making, and reasoning to make financial and medical decisions. What we do in incapacity planning as part of estate planning is to name certain parties to handle those decisions for you and also provide specific directions in the event of your incapacity, which could also include defining incapacity events.
When Should I Create An Incapacity Plan?
An incapacity plan can be created when a minor turns 18, so as early as that. An incapacity plan could also be created when you retire.
Starting with the minor when he or she turns 18, it’s important for parents to understand that when their child turns 18 then they can no longer manage accounts and make medical decisions for that child or get medical information for that child. The child is on his or her own when he or she is in college. If that child is in an accident and cannot make decisions, the parents really won’t have any say without incapacity planning documents.
Practically speaking, most people for themselves look at incapacity planning as part of a normal estate planning set of documents. It is a big mistake just to say, “I’m ready to make a will” without also considering the incapacity plan as well.
Ultimately, it’s a good idea to create an incapacity plan and not, as some people erroneously believe, to create one when you need it. You cannot create an incapacity plan by citing documents if you don’t have incapacity. The big idea is to get something down and in a perfect world it is going to be an ongoing process. For my example with younger people going off the college, it could be just as simple as naming parents to make decisions for you if you’re unable.
Should you receive a diagnosis of dementia, ALS, Parkinson’s or any other long-term care illness where you may have indefinite incapacities, whether physically or mentally, then you really want to be specific with your incapacity planning so that your family and your caregivers will have a plan to follow and feel confident and comfortable that they’re following your wishes.
What Should An Incapacity Plan Include And Address?
The bottom-line foundational legal documents that should be included in the incapacity plan are a durable power of attorney, designation of healthcare surrogate, living will and HIPAA authorization. Incapacity planning can also include trusts in various forms. The main components of an incapacity plan involve a delegation of decision-making and signing power if you’re unable to sign documents or make sound and reason financial and medical decisions. The second component of an incapacity plan could be instructions to your decision makers. If you are concerned about an incapacity plan that also would deal with issues such as preventing nursing home spend down and for the nursing home from taking all assets then you would want to look into an irrevocable income-only trust.
If you have concerns about second marriage issues when you have adult children and a second spouse who did not raise the adult children, you may want to think about trusts as well in order to allocate resources between adult children or a healthy spouse who may also be relying on your income for his or her own wellbeing as well as yours. Depending on the complexity of somebody’s family situation and health medical history, family medical history, an incapacity plan should also consider trust planning as well.
What Specific Aspects Of The Estate Plans Handle Incapacity Planning?
Legal tools that handle incapacity are typically a trust agreement, durable financial power of attorney, designation of healthcare surrogate, living will and HIPAA authorization. You also can include instruction letters to explain intent so that your future fiduciaries handling your affairs know what your intent is and that if your intent is violated then other people have a recourse to make sure your intent is fulfilled. Or if other people have objections to how your fiduciary is handling your financial medical decisions, that fiduciary will have something to back up their decision-making consistent with your intent because if anything is ever challenged in an incapacity plan, it will be viewed in the lens of whether the fiduciary is fulfilling the intent of the creator of these legal instruments.
For more information on Incapacity Planning In Estate Planning, an initial consultation is your next best step. Get the information and legal answers you’re seeking by calling (904) 398-6100 today.
Call Us Today
(904) 398-6100
