Estate planning can also include "incapacity planning." This means laying the groundwork to prepare for your possible incapacity. You can specify who you want to assist you with managing your financial affairs, and with providing for your food, clothing and shelter if you were to become unable to do so for yourself. Planning for your incapacity may also reduce your chances of being a victim of fiduciary abuse, if you appoint a competent and trustworthy individual to care for you.
I. TRUST. A Trust is a written expression of your desires regarding the management of assets during your lifetime, if you become incapacitated; and the distribution of your assets upon your death. A Trust is created during your lifetime, usually for your own benefit for as long as you live. At the time of your death, the Trustee will make the proper distributions of your trust according to the instructions left in the trust.
- Settlor The person who establishes a Trust and transfers his assets (real property, bank accounts, stocks, etc.) into the Trust.
- Trustee The person appointed by the Settlor to manage the trust assets. The Trustee and the Settlor are usually the same person. A well drafted Trust will contain the names of "successor" Trustees, who will manage the trust assets when the original Trustee becomes incapacitated or passes away.
- Management of Trust Assets Upon Your Incapacity. The "successor trustee" will take over the management of trust assets, immediately upon your incapacity. Your successor trustee will continue to follow your wishes as set forth in the trust. If you recover from your incapacity, you can assume the responsibilities as Trustee and regain control over Trust assets.
- Can You Change The Terms of Your Revocable Trust? Yes, a revocable Trust offers the flexibility of revision. As conditions in your life change, you can alter or terminate it at any time during your lifetime, as long as you have the capacity to do so.
- Who Should Act As Trustee of My Trust? A family member can serve as a trustee upon your death or incapacity. The trustee must be a person who can be trusted, especially since the Court usually does not supervise the management of the trust assets, and a bond is only rarely required. A trustee, particularly one who acts upon your death or incapacity, should be available and willing to devote specific attention to your property. The trustee should be skilled in investment management or have access to those who are so skilled.
- Benefits of a Trust:
- The trust provides for management of your assets during your lifetime and names someone to assume responsibility for them if you become incapacitated, which can often eliminate the need for a conservatorship.
- Your assets will be managed pursuant to your written instructions in the trust.
- A trust contains instructions for distribution of your assets after your death, and probate proceeding can be avoided upon your death.
- General Power of Attorney. This document gives the agent the authority to transact any and all of your business, and is also responsible for the management of your assets. You, as the principal, may also limit the extent of an agent's authority by setting forth the entire scope of the agent's duties in the durable power of attorney.
- Requirements For A "Legally Sufficient" General Power of Attorney (PA):
- The PA must contain a description of agent's powers and duties;
- The PA must contain the date of its execution;
- The PA must be in writing and signed by the principal or at the principal's direction; and
- The PA must either be acknowledged by a notary public or signed by at least two witnesses.
- When Does A Durable General Power of Attorney Become Effective? The PA will specifically state whether it is effective immediately upon execution or whether it becomes effective at a specified future time or on the occurrence of a specified event or contingency.
- Immediately Effective PA: A principal may execute an "immediately effective" power of attorney, which immediately authorizes the agent to manage the competent principal's property, and continues despite the principal's later incapacity. As long as the principal remains competent, either the principal or the agent may act on the principal's behalf. While the principal is still competent, he or she may revoke the durable power of attorney at any time. Once the principal becomes incompetent, he or she cannot revoke their durable power of attorney.
- "Springing" Power of Attorney: This PA only becomes effective at a specified future time or on the occurrence of a specified event or contingency. The principal is in complete control of the management of his assets, as long as the principal is able to manage his own financial affairs. Upon the principal's incapacity, as certified in writing by a doctor, the document "springs into effectiveness" and the agent takes over the management of assets for the principal's benefit.
- Capacity. A person must have the capacity to enter into contracts and understand the ramifications of his or her execution of a durable power of attorney in order for him or her to execute a valid durable power of attorney or a durable power of attorney for health care. If the person does not have such capacity, then he or she cannot execute a durable power of attorney or a durable power of attorney for health care.
- Preventing Fiduciary Abuse. If you have executed a durable power of attorney while you were competent, you have appointed a particular person to step in and immediately begin managing your assets when you no longer have the capacity to do so. Many incapacitated older adults are taken financial advantage of when there is no one authorized to manage their financial affairs on their behalf.
- Selecting your Agent. As with the selection of a trustee for your trust, you must select a person who can be trusted, because no one, such as the Court, will supervise the management of your assets. As such, your agent has ample opportunity to mismanage or misappropriate your assets. If you are incapacitated, you may not realize a theft has occurred until it is too late.
**FYI: Power of Attorney for Health Care - You can also execute a "Power of Attorney for Health Care." This document specifies who can make medical decisions for you in the event of incapacity. This document deals with all aspects of medical treatment. This document can be tailored to be as general or as specific as you choose.