Incapacity Planning: You need an incapacity plan that works when it’s needed, and you need it now.
There is a reason why there are two seats in the front of every airplane. One seat for the pilot, the other for the just in case, backup plan person, co-pilot. You are the pilot of your life. You decide what to do and how and when to do it. We often take it for granted that we will be able to do tomorrow what we did yesterday. The reality of life is just the opposite. Illness, age, injury, or accident can all take away your capacity and your ability to make decisions and manage your life. You need a co-pilot.
- What happens without an incapacity plan.
- The essential documents for managing finances during incapacity.
- The essential documents for making health care decisions during incapacity.
- How to choose the right person for managing finances and making health care decisions during incapacity.
- The importance of keeping an incapacity plan up to date.
1. Durable Power of Attorney: This document gives someone the authority to pay bills, make financial decisions, manage investments, file tax returns, mortgage and sell real estate, and address other financial matters that are described in the document. A Durable Power of Attorney goes into effect as soon as it is signed, there is no need to prove that the individual is incapacitated. A Durable Power of Attorney should be a part of everyone’s life regardless of age. If you are over 18, you need this document. Also, you should update and re-execute the power of attorney every five years.
2. Revocable Living Trust: While not an alternative to a power of attorney, a living trust can provide options for the management of your assets that are in the trust. In every estate plan where we are using a trust, we will still have a power of attorney as well.
- The ability to create trusts, including irrevocable trusts.
- The ability to make unlimited gifts, including making gifts to the power of attorney.
- The ability to manage tax qualified plans such as IRA and 401k plans.
- The ability to convey the “homestead” including the ability to waive constitutional homestead interest.
- The provision for an alternate power of attorney.
- To create an inter vivos trust (one created during your life), either revocable or irrevocable.
- To amend, revoke or terminate a trust.
- To make a gift in any amount or kind, including a gift in excess of the annual gift exclusion and including a gift to the named attorney in fact.
- To create or change rights of survivor-ship.
- To create or change a beneficiary designation including but not limited to bank accounts, individual retirement accounts or similar tax qualified account, annuities, and pensions
- To waive the grantor’s right to be a beneficiary of a joint and survivor annuity.
- To disclaim property and powers of appointment.
The Three Must-Have Documents for Health Care Decision-Making
There are three essential legal documents for making health care decisions that must be in place prior to becoming incapacitated:
1. Healthcare Surrogate: This document gives your backup person the authority to make health care decisions if you become incapacitated.
2. Living Will: This document gives your backup person the authority to make life-sustaining or life-ending decisions if you are incapacitated.
3. HIPAA Authorization: Federal and state laws dictate who can receive medical information without the written consent of the patient. This document gives a doctor or other health care provider authority to disclose medical information to a person selected by the patient.
- Who will be in charge of managing your finances during incapacity; and
- Who will be in charge of making your medical decisions during incapacity.
- Where does the person live? With modern technology, the distance between you and your backup should not matter. Nonetheless, someone who lives close by may be a better choice than someone who lives in another state or country.
- How busy is the person? If the person has a demanding job or travels frequently for work, then they may not have time to take care of your finances and medical needs.
- Does the person have special expertise in managing finances or the health care field? A person with work experience in finances or medicine may be a better choice than someone without it.