Protecting Dependents if you are Disabled.

Estate planning includes, but is not limited to, who inherits what assets when a person dies. It also includes who manages and controls your assets when you are disabled or otherwise unable to property manage your legal, financial and property affairs. Such disability planning may benefit other loved ones, such as spouses, children, and elderly parents who receive assistance from you. If you want that assistance to continue even during your own incapacity, then legal authority and instructions needs to be included in your trust and power of attorney, as relevant.

Let us consider a married couple. Each person wants that their spouse can manage and control the couple’s assets inside and outside of the trust for both spouses’ benefit. If the couple has a living trust then typically the trust benefits both spouses while alive and permits the well spouse to manage trust assets alone when the other spouse is unable. Trust owned assets typically include real property, cash and investment accounts. Of course, joint accounts allow each spouse full authority to manage the account alone; so long as at least one spouse has capacity then this may work.

However, non trust assets, specifically retirement accounts (e.g., Individual Retirement Accounts (“IRA’s”) and 401(k) accounts) are never owned by a trust and may not be not be jointly owned. The trustee has no authority and power to control non trust assets. That is when the incapacitated person’s power of attorney becomes relevant.

Hopefully the incapacitated person has a well drafted power of attorney to authorize the person’s spouse, and alternative backup agents, to manage the incapacitated persons’ non trust assets, especially the retirement accounts. Some financial institutions may require that their own “in house” power of attorney form be used. Such in house power of attorney forms are limited in their scope to those accounts held at the specific bank or brokerage house. They do not replace a broad sweeping power of attorney such as the California Statutory Power of Attorney or an attorney drafted power of attorney.

If the married couple is a second marriage, especially where separate children are involved, then the married couple should discuss how each spouse’s income and assets are to help in paying joint and separate living expenses for each spouse if one spouse is incapacitated. That is, to what extent does the incapacitated person’s retirement assets still contribute towards the well spouse’s own individual and portion of shared living expenses. Perhaps the well spouse should use his or her own income and resources to pay all or a substantial share of her own expenses and also her portion of shared expenses. Perhaps not, it depends. Anything important to protect requires consideration and advanced estate planning in place.

Next, consider a parent, or parents, who have dependent adult children. Support arrangements vary, but may include free (or reduced) rent living at home or in a dwelling owned by the parents, and paying for cell phone service, and car and health insurances. The parent(s)’s trust and powers of attorney, as relevant, should authorize and instruct how such supports continue, with or without adjustment(s), if the parent(s) are disabled. For example, the parents trust may say, “if the settlor(s) is (are) disabled then any children living at our home shall continue to reside without paying rent, but shall pay their share of the household expenses (excluding property taxes and property insurance).”

Estate planning at a minimum gives you peace of mind to know if you are disabled that your assets and affairs will continue to be managed for your and your dependents’ benefit without necessity of someone going to court. Court proceedings, such as conservatorships, are expensive, time consuming and very complex. It is best to plan ahead for the benefit of oneself and one’s dependents. Such planning is best done when one is well and there is no compelling reason to do so. Better conditions and circumstances reduce the possibility of any dispute as to your capacity and free will to engage in estate planning and the risk of court proceedings.

The foregoing is not legal advice.  Consult a qualified estate planning attorney for guidance. Dennis A. Fordham, Attorney, is a State Bar-Certified Specialist in estate planning, probate and trust law. His office is at 870 S. Main St., Lakeport, Calif. He can be reached at Dennis@DennisFordhamLaw.com and 707-263-3235.