Planning for Incapacity

Throughout my career, I have seen, firsthand, the unfortunate outcomes for clients and their family members when a case of diminished capacity takes hold. In a perfect world, plans are made to minimize the risks of such a condition. However, too often these scenarios develop quietly and unnoticed. Taking action beforehand to avoid the consequences is important. We hope that by taking the time to recognize some of the factors and plan accordingly, our clients and their loved ones can better cope if faced with these challenges. 

Incapacity can strike anyone at any time. Advancing age can bring senility, Alzheimer’s disease, or other ailments. A serious illness, stroke, or accident can happen suddenly at any age. Even with today’s medical advances, it is a real possibility that you or your spouse could be incapable of managing your own medical or financial affairs.

What If?

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, make deposits, sell assets, or otherwise conduct your financial affairs. If you are not prepared, incapacity could devastate your family, exhaust your investments/savings, and undermine your financial, tax, and estate planning strategies. Planning for incapacity can ensure that your healthcare wishes will be carried out and that your finances will continue to be competently managed.

What if you are not prepared? Should you become incapacitated without the proper plans and documentation in place, a relative or friend will have to petition the court to appoint a guardian for you. Petitioning the court for guardianship is a public procedure that can be emotionally draining, time-consuming, and expensive. More importantly, the appointed guardian might not be who you would have chosen to make decisions for you.

Without legal documents that express your wishes, medical care providers must prolong your life using artificial means, if necessary. Be aware that physicians can sustain your life for weeks, months, or even years given today’s medical technology. If this is not your desire, and you want to avoid this possibility, you should have an advance medical directive.

Let’s Talk About Medical Directives…

There are three types of advance medical directivesa living will, a durable power of attorney for healthcare (aka healthcare proxy), and a Do Not Resuscitate order (DNR). Each directive has a unique purpose, benefits, and drawbacks… and may not be recognized in some states. You may find that one, two, or all three types of advance directives are necessary to carry out all your wishes for medical treatment. Be sure to have an attorney prepare your medical directives, to make sure that you have the ones you will need based on your wishes and circumstances and that all documents are consistent.

A living will allows you to accept or decline certain types of medical care, even if you will die because of the choice you make. Generally, a living will can be used only to decline medical treatment that serves to postpone death. Living wills are state-specific.

Durable Power of Attorney for Healthcare, also known as a healthcare proxy, allows you to appoint a representative to make medical decisions for you if you are incapacitated and cannot make the decisions yourself.

A Do Not Resuscitate Order (DNR) is a doctor’s order that tells all other medical personnel not to perform CPR if you go into cardiac arrest.

How can you protect your property? Without someone to look after your financial affairs when you cannot, your property could be wasted, misused, or stolen. To protect against these possibilities, you could consider putting in place a revocable trust, durable power of attorney, or joint ownership arrangement (or a combination of those options).

You can transfer ownership of your property to a revocable trust. You can name yourself as a trustee and retain complete control over your property and affairs. If you become incapacitated, your successor trustee, named in the trust, will step in and take over the management of the trust.

A Durable Power of Attorney (DPOA) allows you to authorize someone else to act on your behalf. There are two types of DPOA: An immediate DPOA, which is effective immediately, and a springing DPOA, which is not effective until or unless you have become incapacitated. Both types of DPOA cease at your death.

A joint ownership arrangement allows someone else to have immediate access to property and to use it to meet your needs. Joint ownership is simple and inexpensive to implement. However, there are disadvantages:

  • Your co-owner has immediate access to your property regardless of whether you are incapacitated.
  • You lack the ability to direct the co-owner to use the property for your benefit.
  • Naming someone other than your spouse as co-owner may trigger gift tax consequences.
  •  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.

You may have family or friends who should also be considering these issues and who may not be adequately prepared. Consider having a conversation with them. Although it may be difficult for some to discuss topics such as this, it is still a possibility that should be addressed. 

If you have questions regarding incapacity planning, please reach out to your Atlas Wealth Management Advisor. We would be happy to speak discreetly with you, or your friends and family.

This information is provided by Atlas for general informational purposes only, and is not intended to provide legal advice. Contact your attorney regarding your specific situation.

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