The Importance of Incapacity Planning

Incapacity planning is an invaluable component of the estate planning process, which is undertaken to decide where — and to whom — assets and properties will be divided when a person passes away. This process also helps family members avoid taxes or the probate court system, which is where cases are kicked when a person does not have an estate plan in place at the time of his or her death.

The legal definition of incapacity is simple. According to USLegal, “Incapacity may … refer to lack of sound mind or lack of maturity to enter into a binding agreement or make decisions on one’s own behalf.”

But incapacity planning doesn’t always revolve around the person putting an estate plan into place. The planner must also account for the possibility that beneficiaries could become incapacitated at some point in the future, thereby barring them from involvement in the decision-making process. That’s why alternate beneficiaries can be named instead.

A person’s own incapacity is divided into two basic categories: medical and financial. That’s because the person best suited to making medical decisions on your behalf might not be the same person you trust with your money. The responsibilities can be divided amongst individuals, left to the court, an attorney, or even a financial advisor, depending on need.

Many estate planning lawyers advise individuals to appoint a general durable power of attorney for financial matters. This may go into effect when a person becomes incapacitated mentally or physically — or when they simply do not want to take responsibility for their own finances anymore.

A medical power of attorney can then be appointed to a different individual. This also kicks in when a person is incapacitated, but many decisions will have already been made during the planning process — all the medical power of attorney will likely have to do is sign off on the complete advanced directive already in order. This document effectively gives a person control over medical decisions they won’t be able to make in the future. 

Many estate planning lawyers will also ask their clients to organize a couple trusts, each with a designated trustee. One of these accounts will be used for daily finances. Performing these actions ahead of time will definitely decrease the amount of emotional trauma your loved ones must endure when you can no longer take care of yourself without a great deal of help.

Elder abuse is common. This includes physical, psychological, or financial harm done to incapcitated or otherwise vulnerable seniors, most of whom are living in care facilities. Theft is a big part of the problem, which is why it’s so important to appoint a financial power of attorney you trust implicitly.

Furthermore, incapacity planning is especially important if you have children — even if you’re still young. Life happens. Bad things happen when you least expect them. Where will your kids end up if you’re no longer around to care for them? Incapacity can be even worse, because you’re there but unavailable.

Ask your estate planning lawyer about a HIPAA Release. This document gives your healthcare providers permission to discuss sometimes personal medical matters with friends or family. Do not mistake a HIPAA release for power of attorney. The former allows family members the comfort of important information should the worst happen without actually asserting they have responsibility for subsequent medical decisions that must be made.

One of the biggest reasons for proper incapacity planning is the cost of going without. Failure to establish a detailed protocol before an accident can result in many unforeseen expenses after. First and foremost among them are legal expenses. Without healthcare directives already in place, providers might need to bounce certain decisions to the court — and that means that your loved ones will ultimately have to request that a judge help them name a legal representative. They won’t always choose the person you would have chosen.

Attorney fees for this kind of court case can be significantly higher than simple incapacity planning fees. Because they probably don’t have access to your bank account, that money is coming out of their own pockets until you can make decisions for yourself again — if ever that is the case.

Another consequence of not naming beneficiaries and providing power of attorney for financial matters to someone else occurs when it comes time to pay bills. Late fees are common in cases like these. Worst case scenarios for failing to pay rent include eviction. Worst case scenarios for failing to pay monthly car bills include repossession. 

What can you do right now? Speak with an estate planning attorney and make sure you have an emergency fund for which your loved ones have access.