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.

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Having a person that is a co-pilot that can step in and help manage your affairs, both financial and medical, if you become incapacitated is critical.
Incapacity planning is all about having a plan in place to deal with what happens if you or a family member becomes mentally incapacitated. You need to consider the following:
  • 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.
What happens if you do not have an incapacity plan in place?
Welcome to court-supervised guardianship or as we say how to lose time, money, and control because of incapacity.
Incapacity caused by an illness, accident, or injury results in you being incapable of making informed decisions about your finances and well-being. Without a comprehensive incapacity plan in place, a judge will appoint someone to take control of an incapacitated person’s assets and make all personal and medical decisions on that person’s behalf under a court-supervised guardianship or conservatorship. Guardianship can be costly in both time and money.
Many people believe they are protected if they become incapacitated because they hold their assets in joint names with a spouse, a child, or another family member. While a joint account holder may be able to access a bank account to pay bills or access a brokerage account to manage investments there are other assets that joint ownership does not work. Tax deferred plans like an IRA or 401k cannot be owned jointly. A joint owner of real estate will not be able sell or to mortgage real property without the consent of all other owners. Adding names to accounts or real estate titles may also be deemed a gift for gift tax purposes, reduce favorable tax treatment after death and disqualify you for Medicaid eligibility. Lastly, with a joint account you are also multiplying your exposure to liability and lawsuits. If a joint account owner is sued, the jointly help property could be seized as part of a judgment entered against them.
Two Essential Documents for Financial Management During Incapacity
There are two legal documents for managing finances that should be in place prior to becoming incapacitated:

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.

Not all powers of attorney are created equally.
It’s very common for people to think that all powers of attorney are the same. That it should not matter who drafts it or where the document comes from. That whether you downloaded it from the internet or bought a form from Office Depot it does not matter. Not all powers of attorney are the same. There are huge variations in these documents. Variations that can make the power of attorney ineffective.
About 70 percent of the power of attorney documents that we review are fundamentally flawed. That is a significant failure rate. The words in the power of attorney are incredibly important. If the power of attorney document does not explicitly say that your backup person can do a particular thing then they cannot do that thing.
The five most common powers we find routinely missing in power of attorney documents:
  • 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.
And one other big issue, power of attorney documents should be no older than five years. Powers of attorney tend to go stale over time and should be kept fresh by re-execution every five years.
If your power of attorney document is missing any of the above or is older than five years, it should be redone now.
Additionally, Florida law has an additional requirement concerning seven specific powers. The legislature determined that these particular powers not only need to be specifically described in the power of attorney document, but that they also need to each be initialed by the person signing the document.
The following specific powers, sometimes referred to as the “superpowers” must be initialed for the authority to be granted, if not initialed, the power is not granted and not effective:
  • 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.
Every day we review powers of attorney for clients and every day we see powers of attorney that do not have these provisions initialed. Often time there are paragraphs in the document with each power, the correct language, and a blank line for initials, but no initials. If caught early this problem can be solved easily. If this issue is discovered after the person has lost capacity, then the only solution is to go to court and open a guardianship case.

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.

Your family may be denied access to medical information during a crisis situation and end up in court fighting over what medical treatment you should, or should not, receive. Without these three documents, a judge may need to appoint a Guardian or Conservator of the Person to oversee your health care, thereby adding further expense and hassle to the court-supervised guardianship or conservatorship. Our Healthcare Surrogate has all three documents combined into one document for the client’s convenience.
How to Choose the Right Backup Person for the Incapacity Plan
There are two important decisions you must make when putting together your incapacity plan:
  • Who will be in charge of managing your finances during incapacity; and
  • Who will be in charge of making your medical decisions during incapacity.
Factors you should consider when deciding who to name as your financial and health care backup person include:
  • 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.
Choosing the wrong person to serve as financial or health care backup will result in an ineffective incapacity plan. In order to create an effective plan, you need to carefully consider who to choose then discuss your decision with that person to confirm that they will in fact be willing and able to serve.
The importance of keeping an incapacity plan up to date.
Things change in our life. The person you choose for your backup person may need to change as well. Children can move away, they may get married and be influenced by their spouse, they may encounter their own life challenges or in the case of spouses, your spouse who once was an obvious choice, but because of illness or age is no longer the best choice. Also, power of attorney documents tend to go stale over time. We strongly recommend doing a power of attorney review and refresh every five years.

Here's another way the team at Scott Law Offices goes above and beyond for our clients:

We provide comprehensive aging support.

We are your advocates and advisors throughout the transformative journey of aging. We provide guidance on all aspects of the aging process, ensuring confidence and security for your future.
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