The Incapacity Trigger- Estate planning is not just about who inherits when you die, it is also about who manages your assets, finances and health care decisions when you become incapacitated. Incapacity planning raises the issue of whether to confer legal authority while one still has capacity or to wait until one has lost capacity to manage one’s own affairs. Let us discuss.
Agents under a power of attorney can control their principal’s legal, financial and property affairs other than those related to assets held in the principal’s trust. The scope of the fiduciary authority conferred on an agent can be very broad or narrowly tailored. Most estate planning attorneys typically draft very broad powers of attorney to cover a wide gamut of unexpected circumstances.
If a power of attorney is immediately effective upon signing it avoids future delays and difficulties associated with determining the principal’s incapacity; there is no need to involve any third parties. If this approach is taken, the actual document is stored in a safe place until such time as it is needed in order to prevent premature use. The agent just needs to know where and how to access the document.
Otherwise, a power of attorney can require that one or more physician certificates of incapacity and/or written determinations of incapacity by trusted persons (such as relatives) be attached to trigger (activate) the power. Obtaining such certificates of incapacity can be time consuming and difficult for a variety of reasons. Nonetheless, some people prefer to have these “springing powers of attorney” that requires certificates of incapacity.
Usually if the primary agent is a trusted spouse the principal makes the power of attorney immediately effective. However, when less trusted relationships are involved the principal may prefer not to transfer legal authority unless and until one or two independent physicians have determined that the principal is no longer able to manage his or her own financial, property and legal affairs.
With trust assets, the trustee holds the power to manage the assets; not an agent under a power of attorney. Typically, the settlor (i.e., the person who created and funded the trust) is the trustee until incapacity or death. Upon the settlor’s incapacity, the successor trustee will need to obtain whatever certificates the trust document requires in order to establish incapacity and take authority.
If a settlor wants someone else to manage the trust assets sooner the settlor can either appoint that person as trustee from the start or later on resign and have the successor trustee assume office.
With health care decisions the principal always retains control so long as he or she can has capacity to make healthcare decisions, even if the advance health care directive provides that the power is effective upon signing. For that reason, there is less concern over one’s losing health care decision making authority.
Incapacity is not always permanent and does not always lead to death. If an incapacitated person later regains capacity the same process used to determine incapacity must be repeated to establish that the person has regained the ability to manage their own legal, property and financial affairs. Once established the person resumes control.
Giving someone else control over your own affairs should not be taken lightly. Planning for such contingency while one still has capacity, however, allows you to say whom you trust to step in and manage your affairs without involving court proceedings. Doing so can avoid expensive court supervised conservatorship proceedings down the road.
“Serving Lake and Mendocino Counties for nineteen years, the Law Office of Dennis Fordham focuses on legacy and estate planning, trust and probate administration, and special needs planning. We are here for you. 870 South Main Street Lakeport, California 95453-4801. Phone: 707-263-3235.”