Posted by The Life and Legacy Planning Group
For most people, it is perfectly natural to think about estate planning only in terms of planning for death. Planning for your death, obviously, is very important. But if that is all you plan for, your planning can quickly become woefully inadequate. As medical knowledge and technology have improved over the decades, so too has modern medicine’s ability to keep people alive for much longer. It is no accident that in many areas of the country, long-term care facilities such as assisted living centers and nursing homes are being built at a record pace.
At first blush, staying alive longer would seem to be a good thing. And for many people, it is. However, simply living longer does not always result in ideal circumstances. Longevity coupled with physical or mental incapacity can be extremely challenging if you fail to make arrangements for someone to assist you during that period of time. On the other hand, with proper incapacity planning, you can rest assured knowing that your affairs are in good hands, out of the public eye, and being handled without the expense of lawyers, courts, and unnecessary complications.
What Is Incapacity?
Before we discuss how to plan for incapacity, it is important to clarify what it means to be incapacitated. Each state has its own method for determining legal incapacity, and most states have enacted laws that define what incapacity is. For example, in states that have adopted the Uniform Probate Code, an incapacitated person is typically defined as follows:
“Incapacitated person” means an individual who, for reasons other than being a minor, is unable to receive and evaluate information or make or communicate decisions to such an extent that the individual lacks the ability to meet essential requirements for physical health, safety, or self-care, even with appropriate technological assistance.
Although some states have defined incapacity more broadly or more narrowly, in most states, this is a common definition of legal incapacity. From a purely practical perspective, however, incapacity can be described as an ongoing condition where you simply do not have the mental ability to take care of routine tasks for yourself without assistance from someone else. Such tasks might include paying your bills, cooking your meals, bathing, grooming or dressing yourself, taking your own medications, or being unable to protect yourself from financial or physical exploitation.
Why a Will Alone Will Not Cut It
Almost all estate plans created in this country include a Will. A Will is a legal document that allows you to memorialize your wishes for what you would like to happen after you have died. For example, a Will allows you to:
- authorize someone to handle your final affairs after your death (an executor or personal representative);
- name who will receive your accounts and property and in what shares, including successor or backup beneficiaries; and
- designate guardians of your minor children.
Did you notice a theme in the list above? They are all things that must be handled only after you have died. That is an important point. A Will only becomes effective once you are dead.
So does a Will help you if you become incapacitated? The short answer is no. A Will is not any help if you become incapacitated. To provide some level of incapacity planning in your Will-based estate plan, you must obtain additional legal documents, including at least a financial power of attorney, called a Power of Attorney for Property in Illinois, and Power of Attorney for Health Care.
Financial Power of Attorney
A Power of Attorney for Property is a legal document that you sign before you become incapacitated that allows you to appoint a trusted individual to act as your agent (meaning the appointed individual can act on your behalf). In this document, you spell out what an agent may do: a Power of Attorney for Property allows an agent to handle most of your financial affairs. Legally, your agent must act in your best interests when handling your property and legal affairs. A Power of Attorney for Property can, and in many cases should, grant the power to take the following actions:
- handle your deposit and banking accounts
- withdraw funds from your retirement accounts
- enter into contracts
- collect your mail
- deal with your various insurance companies
- make investment decisions on your behalf
- sell, mortgage, lease, and manage real property
You can also determine when your agent is allowed to act on your behalf. It can be restricted to only after you have become incapacitated (a springing Power of Attorney) or take effect as soon as you sign the document (an immediate Power of Attorney). When planning for your incapacity, it is important that your Power of Attorney for Property be durable, which means that your incapacity will not affect the validity or effectiveness of the document.
If you have a Will-based estate plan and no Power of Attorney for Property (or an invalid one), your loved ones will have to go to court to have someone appointed to take care of these matters for you through a process known as guardianship. This can be a very costly, public, and time-consuming process for your loved ones during a stressful and emotional time.
Advance Medical Directives
An advance medical directive is a document or set of documents in which you can appoint an individual to act on your behalf regarding medical decisions and, if authorized under your state law, also memorialize some of your medical and end-of-life wishes. Similar to a Power of Attorney for Property, a Power of Attorney for Health Care is one kind of advance medical directive that allows you to appoint an agent, often referred to as a medical or health care agent, who has the ability to make medical or health care decisions on your behalf when you are unable to make and communicate your wishes yourself (i.e., if you are unconscious, even temporarily).
Another kind of advance medical directive is a Living Will, which is a legal document in which you can specify the kinds of end-of-life decisions that you want your doctors or health care agent to make on your behalf. In some states, an advance health care directive will contain both a power of attorney and end-of-life instructions; other states require separate legal documents. Regardless of the format, these documents are a critical component of making your estate plan incapacity proof. By naming someone you trust to make health care decisions for you, similar to the decisions you would have made if you could still communicate your wishes, you can ensure that you receive the care and medical treatment that is most appropriate for you.
If you do not have an advance health care directive, your loved ones will be forced to go to court and have a judge decide who can make medical decisions for you if you are not able to make or communicate your wishes.
Trust-Based Estate Planning and Incapacity
For those who want to make their estate plans truly incapacity-proof, a Revocable Living Trust can be a powerful legal tool. This type of trust has become the foundation of many well-constructed estate plans in this country. A Living Trust is a legal agreement between a settlor (a person with the money and property, sometimes called a trustor, trustmaker, or grantor) and a trustee (the person charged with managing, investing, and handing out the money and property). For most Revocable Living Trusts, the settlor changes the ownership of the settlor’s accounts and property from the settlor as an individual to the trustee of the Revocable Living Trust, who is often initially the settlor himself or herself. The trustee agrees to manage and protect the money and property for the benefit of beneficiaries. In a Revocable Living Trust, the settlor is also the beneficiary during the settlor’s lifetime. Holding the property in this type of legal structure creates a great deal of flexibility to deal with incapacity issues as they arise.
For example, if you created a Revocable Living Trust, named yourself as trustee, and transferred most of your property into the trust, you could use and enjoy your property just as you do today. But if you suddenly became incapacitated, a successor trustee (named by you beforehand in your trust document) could quickly and seamlessly step into your shoes as trustee to continue managing the trust property for your benefit throughout any period you are incapacitated. All of this could be accomplished outside of the courtroom, maintaining privacy and eliminating burdensome court and attorneys’ fees in the process. Then, when you die, your successor trustee would have the authority to continue to manage the trust property or give it to remaining living beneficiaries (typically, your loved ones that you leave behind). Again, this can be done completely outside of the court system, thereby eliminating significant cost, delay, and invasion of your and your loved ones’ privacy.
Do not forget that this incapacity planning is only as good as the individuals you choose to serve in fiduciary roles (agent, successor trustee, etc.). If the person or people you named can no longer fulfill their responsibilities, you will need to change your legal documents as soon as possible to ensure that the best possible people are serving in these crucial roles.
Finally, it is important to remember that a trust-based plan should still include a Will, Power of Attorney for Property, and advance health care directives. Each of these documents has important legal functions designed to address circumstances that a Revocable Living Trust alone cannot.
By carefully crafting each of these legal documents with our help, you can feel confident that your loved ones and the property that you have worked your whole life to obtain will be in good hands if incapacity strikes. We are here to help you think through and implement each decision that goes into making your estate planning truly incapacity proof. Give us a call today.
 Ronda Kaysen, Some Builders Are Ready for the Wave of Seniors, N.Y. Times, Aug. 23, 2011, https://www.nytimes.com/2011/08/24/realestate/commercial/builders-of-senior-housing-respond-to-growing-need.html?auth=login-google.
 Unif. Prob. Code § 5-102(4) (2019).