Incapacity Planning – Estate planning is about more than just who gets what, when and how after you die. It is also about who manages your health care, financial, property and legal affairs when you become physically or mentally incapacitated. Trusts, Powers of Attorney, and Advance Health Care Directives collectively speak to managing these issues.
If left unaddressed, then upon a person’s incapacity the family may need to go to court for a conservatorship — a costly, time consuming and often contentious court proceeding. With advance planning in place, however, conservatorships can often be avoided. Let us discuss.
A power of attorney can allow the principal’s agent to act over a wide variety of areas, including bank accounts (outside of a trust), government benefits, retirement plans, and legal affairs (except signing a will). An agent can control the principal’s affairs for the benefit of the principal and his or her dependents. A well drafted power of attorney will specifically address certain important areas with special instructions.
Broadly speaking, there are three types of powers of attorney: (1) the California Uniform Statutory Power of Attorney; (2) Attorney drafted powers of attorney; and (3) bank specific powers of attorney.
The California Statutory power of attorney is legally sanctioned, well understood, and widely accepted in California and in other states that adopted the same uniform legislation. It can, and should, be customized to include special instructions to address special areas such as digital assets, personal care and gifting.
An attorney drafted, non-statutory power of attorney can be used to nominate an Attorney in Fact, someone who generally speaking is granted broader authority than an Agent under the Statutory Power of Attorney. Unless the Statutory Power of Attorney contains additional specific instructions, the authority granted the Agent is more limited than the blanket authority typically granted an Attorney in Fact.
Financial institutions, such as banks and brokerages, prefer, or even insist, that their customers use the institution’s own in-house power of attorney to control accounts at that institution. Many banks do not want, due to liability concerns, to accept the wide variety of power of attorney forms that could otherwise be presented. A call from an attorney can sometimes be helpful to persuade the bank to accept a durable power of attorney other than the bank’s own form.
Trusts allow an incapacitated settlor’s successor trustee to manage the trust assets only without a conservatorship. The Trustee has an affirmative duty to act in accordance with the instructions in the trust. Trusts are, typically speaking, more robust legal instruments than are durable powers of attorney. A successor trustee will have an easier time gaining control over the assets held inside the trust than an agent under a power of attorney who may encounter obstacles when presenting a power of attorney to a bank or brokerage held outside of the trust (for reasons discussed above).
Advance Health Care Directives (“AHCD”) provide instructions on what you do and do not want to be done with respect to important health care issues, including, but not limited to, organ donations, end of life treatment, and disposition of remains. An AHCD with a Health Insurance Portability Accountability Act (“HIPAA”) release allows your Agent to speak on your behalf with your health care providers. Importantly, as the AHCD agent will incur costs in making health care arrangements that agent must either also be the agent under the power of attorney or at least have a good working relationship with the financial agent.
Incapacity can come at any time and without any warning. When it does come it can have profound and lasting consequences. Acting proactively, as discussed above, can avoid much greater expenses and pain down the road. Obtaining the assistance of a qualified attorney in advance is much less costly than paying later-on for a conservatorship down the road.