By: Heinz Brisske

Estate planning is not only about having a plan in place to deal with what happens after a client’s death, it is also about having a plan in place to deal with what happens if a client becomes mentally incapacitated. In this article you will learn:

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.

If you have any questions about incapacity planning or have a client who needs to make or update their incapacity documents, please call our office now.

Court-Supervised Guardianship: How to Lose Time, Money, and Control During Incapacity
Mental incapacity caused by an accident, injury, or illness results in clients being incapable of making informed decisions about their finances and well-being. Without a comprehensive incapacity plan in place, a judge can appoint someone to take control of an incapacitated client’s assets and make all personal and medical decisions on the client’s behalf under a court-supervised guardianship. The client and the client’s loved ones often lose valuable time, money, and control until the client either regains capacity or dies.

Planning Tip: Many clients may believe that they are protected if they become mentally 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, a joint owner of real estate will not be able to mortgage or sell the property without the consent of all other owners. Aside from this, adding names to accounts or real estate titles may be deemed a gift for gift tax purposes. In addition, if a joint owner is sued, the property could be seized as part of a judgment entered against them. Only a comprehensive incapacity plan will protect the client and the client’s assets from a court-supervised guardianship and the misdeeds of a joint owner.

The Essential Documents for Financial Management During Incapacity
There are two essential legal documents for managing finances that must be in place prior to becoming incapacitated:

Power of Attorney for Property (a financial Power of Attorney). This legal document gives an agent 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. Powers of Attorney for Property come in two forms: those that are effective immediately and those that are springing. A springing Power of Attorney only goes into effect upon the occurrence of an event set forth in the document.
Revocable Living Trust. This legal document has three parties to it: the person who creates the trust (the “Grantor” or “Settlor” – both terms mean the same thing); the person who manages the assets transferred into the trust (the “Trustee”); and the person who benefits from the assets transferred into the trust (the “Beneficiary”). In the typical Revocable Living Trust situation the Grantor or Settlor is also the Trustee and the Beneficiary of his or her own trust, but if the Grantor/Trustee/Beneficiary becomes incapacitated, then someone else is named to step in as the Successor Trustee to manage the trust assets for the benefit of the incapacitated Grantor/Beneficiary.

Planning Tip: To be part of an effective incapacity plan, a Revocable Living Trust should contain provisions to determine the mental status of the Grantor/Trustee/Beneficiary through a private process (i.e., a family member, a disability panel, an attending physician, the opinions of two physicians, or some other method) instead of a public court process. In addition, the trust agreement should contain specific instructions about how to take care of an incapacitated Grantor/Beneficiary.

Two “Must-Have” Documents for Health Care Decision-Making
There are two essential legal documents for making health care decisions that must be in place prior to becoming incapacitated:

Power of Attorney for Health Care. This legal document, also called an Advance Medical Directive or Medical or Health Care Proxy, gives an agent the authority to make health care decisions if the person signing the document becomes incapacitated.
HIPAA Authorization. Federal and state laws dictate who can receive medical information without the written consent of the patient. A HIPAA Authorization gives a doctor or other health care provider authority to disclose medical information to the agent or agents selected and named by the patient.

These documents are often referred to as advance medical directives.

Planning Tip: A client’s loved ones may be denied access to medical information during a crisis situation and end up in court fighting over what medical treatment the client should, or should not, receive (like Terri Schiavo’s husband and parents did, for 15 years). Without these two advance medical directives, a judge may also appoint a Guardian of the Person to oversee the client’s health care, thereby adding further expense and hassle to the court-supervised guardianship. Clients should have these two advance directives examined and updated frequently to ensure they accurately reflect their wishes.

How to Choose the Right Agents for an Incapacity Plan
There are two very important decisions clients must make when putting together their incapacity plan:

Who will be in charge of managing their finances during incapacity; and
Who will be in charge of making their medical decisions during incapacity.

Factors clients should consider when deciding who to name as their financial agent and health care agent include:

Where does the agent live? With modern technology, the distance between the client and the agent shouldn’t 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 agent? If the agent has a demanding job or travels frequently for work, then the agent may not have time to take care of the client’s finances and medical needs.
Does the agent have expertise in managing finances or in the health care field? An agent with work experience in finances or medicine may be a better choice than an agent without it.

Planning Tip: Choosing the wrong person to serve as property or health care agent will result in an ineffective incapacity plan. In order to create an effective plan, clients need to carefully consider who to choose as their agent and then discuss their decision with that person to confirm that they will in fact be willing and able to serve. Clients often overlook the fact that an appointed agent has no duty to act, and can decline to act or resign even after agreeing to act.

The client may also want to discuss a third advance medical directive with his or her attorney. A Living Will is a legal document that applies if the client has no health care agents available to make a decision and is an irreversibly terminal condition. In such a situation, the Living Will directs a medical provider not to use extraordinary measures to prolong the dying process.

Are the Incapacity Plans of Your Clients Up to Date?
Laws regarding incapacity may change. For instance, the Illinois Power of Attorney Act was amended effective July 1, 2011, and the Amendment included new forms of Power of Attorney for Property and Power of Attorney for Health Care. Effective January 1, 2015, the Illinois Power of Attorney Act was again amended, but this time only the Power of Attorney for Health Care was affected. Looking ahead, there is every likelihood that the Illinois Power of Attorney Act will again be amended because of the widespread criticism leveled at the 2015 Amendment by Estate Planning and Elder Law professionals. An Amendment addressing these criticisms is currently pending in the General Assembly.

As time passes and the lives of your clients change, their incapacity plans will become stale and outdated. It is important for clients to have their incapacity plan reviewed every few years or after a major life event (such as a divorce or death) to insure that the plan will work the way they intend it to work if it is ever needed.

Please contact our office to discuss your questions about incapacity planning and to schedule plan reviews for your clients.