What Happens if You Become Incapacitated? Know Your Estate Planning Options
No one likes to plan for the worst. But it’s vital you do so.
Imagine being unable to make your own decisions and how powerless that must feel, especially if you didn’t plan for the worst. If you’re incapacitated, and without legal recourse, the people closest to you are left to bicker over your future and potentially play tug of war with your assets.
Maybe it all works out.
Maybe it doesn’t. Maybe someone successfully fights for guardianship and begins selling your assets, your home, your car or your heirlooms to pay for the facility they feel is a better place for you to live. Or maybe the decision to put you on or take you off life support goes to someone you’d least expect.
“People want to believe their family gets along pretty well and there won't be any issues, but they are all just a collection of people,” explains Patrick Pacheco, Cadence Bank’s Asset Management and Trust Executive. "These folks have their own families and their own advisor, spouse or otherwise, whispering in their ears about what should happen or not happen. Will contests and incapacity or guardianship contests are the most bitter suits you ever get, and most of the time, control of the money is a driving factor.
“You really have to think through how that’s going to play out and what it could mean for you and your family.”
Planning for incapacity: Know your options
“If you are incapacitated, legally or otherwise, you won’t be able to sign contracts, estate documents, checks or anything of substance or do anything without help,” reminds Pacheco, urging those that are considering these options to do so sooner rather than later. While you’re capable, look into options such as having a power of attorney, a living trust, and what can happen if those closest to you have to go to court to get guardianship of you, the incapacitated individual.
Pacheco advises against guardianship unless it’s the only or best alternative. “The one thing you definitely want to avoid in almost all circumstances is a guardianship, because it is a court proceeding that requires budget approval, investment approval and spending approval. It can cost you, or more correctly the guardianship estate, a lot of money because court proceedings tend to ramp up all costs pretty quickly."
1. Durable power of attorney
A durable power of attorney survives incapacity. This means that financial and medical powers you’ve assigned to specific individuals and agents are still valid even if you become incapacitated. If it does not say durable and you become incapacitated, the power of attorney ceases to have any effect, which completely misses what it is trying to accomplish.
A power of attorney can be made effective immediately or take effect should you become incapacitated. The challenge to the latter is that those individuals that you select will have to prove you are legally incapacitated.
Powers of attorney can be medical or financial, and do not have to be granted to the same person. A financial power of attorney, for instance, only grants the ability or rights that are specifically set out in that document. If it doesn’t say you can do something, then you don’t have the ability to do that. You can also set limits with regards to things like gifting, and whether children or agents are able to make gifts out to themselves from your trusts or lifetime estate.
Important note: A power of attorney can be disrupted and rendered void, suspended or limited for a period of time if someone applies for guardianship or is successfully appointed as your guardian.
2. Guardianship & declaration of guardianship (for your kids and for yourself)
As mentioned, if someone is named a guardian, that power potentially voids powers granted by a power of attorney. While you may think of guardianship as it relates to children, it also applies to you. If you don’t have a fully funded living trust or a well drafted power of attorney with an agent that will act quickly, your children or relatives can apply for guardianship of you. If one is successful, they essentially have full power over decisions affecting your medical and financial well-being.
Having a declaration of guardianship for your dependents as well as for yourself will ensure that the individuals you believe will properly handle your guardianship estate, your person or the raising of your children are likely to be appointed. While you can’t absolutely mandate who the court chooses to appoint, you can establish who absolutely cannot be named guardian in case someone is successful in trying to file for incapacity and attempts to be appointed guardian.
3. Living wills
Living wills specify what can and cannot be done if you are rendered incapacitated. This often includes instructions such as a DNR (Do Not Resuscitate) order, instructing doctors and healthcare professionals not to continue to keep you alive under certain conditions, such as being in a coma for an extended period or brain damage after heart failure. The most important aspect of living wills is that you are making the life and death decisions you want to make rather than a spouse, child, or other friend or family member who is distraught over your situation or feeling pressure from others.
4. Revocable living trust
Living trusts are, in Pacheco’s words, the best way "to ensure that you have some framework to run your life if you can’t run your life.” A living trust gives you the ability to manage property and assets in a prudent manner. With a revocable living trust, you remain in control of the trust’s assets and can revoke or change the terms of the trust at any time, for example, should you cease to be incapacitated.
When you establish your living trust, you can either fund all of your assets into the trust while you are capable, grant your agent under your power of attorney the authority to fund your existing living trust, or even create and fund a living trust if you don’t already have one. Once funded, and your trustee is acting, they will manage your assets in your best interest if you’re incapacitated, as you get older and want to travel and relax more, or if you just want to minimize what you’re managing.
Important note: Living trusts are for your benefit only; they are not a unique tax and estate planning vehicle and have no different effect on estate taxes than a similarly drafted will at your death. Rather, they allow the management of a trust with the broadest discretion and flexibility to do what needs to be done, avoiding the limits of powers of attorney and protecting your estate from being undermined by unintended guardians.
Combine these options to create a solid plan
Each of these options can be used individually or together to help you plan for the future. A good combination would be to:
- Use a financial power of attorney
- Use a medical power of attorney
- Designate life and death decisions with a living will
- Establish a living trust dictating how the trust manages assets while alive
- Have a will for estate planning for assets that aren’t in the trust
- If you have children, use a declaration of guardian
Finally, if you have individuals in your family who you expressly do not want attending to your affairs, you’ll want a declaration of guardian for yourself saying who cannot be your guardian should you be rendered unable to make decisions for yourself.
Get in touch
If you have any questions, a Cadence Bank estate planning professional will be happy to help. Contact us today.
This article is provided as a free service to you and is for general informational purposes only. Cadence Bank makes no representations or warranties as to the accuracy, completeness or timeliness of the content in the article. The article is not intended to provide legal, accounting or tax advice and should not be relied upon for such purposes.