Why You Need to Worry About Incapacity Planning
While most people think of a will or trust as an “Estate Plan,” those are actually just one component. A true “Estate Plan” consists of other documents to care for the person, and his or her family, during life and in times of incapacity. The Estate Planning Team at Gielow Groom Terpstra & McEvoy can assist you and answer your questions.
Incapacity can happen at any age and can have many causes. An estate plan that addresses only what happens to your assets (such as your money, property, life insurance policies, and retirement accounts) after death—and does not address who can make decisions about your personal affairs if you become temporarily or permanently incapacitated—is fundamentally flawed.
Does your estate plan include incapacity planning? If you are not sure, or if you would like to schedule a review of your documents, please contact Attorney Chuck Murray.
What It Means to Be Incapacitated
Incapacity means that you lack the ability to handle your affairs due to illness, injury, cognitive decline, or some other cause. You are, to take the literal meaning of the word, in a state of being incapable.
Legally, incapacity means something similar to incompetency. In the context of estate planning, incapacity refers to an impairment that renders you unable to make or communicate important decisions or to manage your affairs, including financial and healthcare matters.
Although often conflated with disability, incapacity and disability are technically not the same. A disabled person can be incapacitated, but disability does not necessarily involve incapacity.
Someone who is in a serious car crash, for example, may have injuries that affect their mobility but not their cognition and communication. They may not be able to get around without assistance, but they can still make important decisions about their financial, property, legal, and healthcare affairs.
Incapacity and Your Estate Plan
When you become incapacitated, somebody else must step in and handle your affairs for you. Your bills and taxes still need to be paid, your investments must be managed, and healthcare must be provided, especially if you have suffered a medical emergency that renders you incapacitated and requires immediate treatment.
If you want to take a proactive approach to incapacity planning, then you should create an estate plan in which you name and appoint your trusted decision-makers to act on your behalf when you are incapacitated using documents such as Financial Power of Attorney and a Patient Advocate Designation (what Michigan calls the medical powers of attorney) and, for those with advanced estate plans, a living trust and appropriate cross-references to the documents to assist during any periods of incapacity. If conditions exist where these people should step in, they are quickly enabled to help you, without going to court. Without an estate plan that names financial and medical decision-makers for you in the event of your permanent or temporary incapacity, these choices will need to be determined by the court.
Michigan laws provide guidelines for determining incapacity when the court must appoint a guardian or conservator for an incapacitated person. These legal definitions typically include medical, functional, and cognitive components. But seeking a court appointed guardian or conservator is often expensive, and other tools exist – powers of attorney – to allow the Principal (the person creating the document) to appoint an Agent (the person who steps in to help under direction of the Principal) to be cared for during periods of incapacity.
However, your prepared documents can give direction, short of going to court, on how to determine incapacity and then what happens, plus how to later determine if the incapacity no longer exists and you can resume your own affairs. This is especially impactful for those with business interests to manage and protect. Typically, loved ones, physicians, or a combination of the two can make the determination of incapacity. You can provide various direction in your documents. However, it is common to provide guidance even if the court needs to be involved. This usually happens when the incapacitated person makes choices that cause themselves financial or physical harm. At that time, it may be necessary, even with incapacity planning, for the court to step in, but with your preferred nominee named in a document being the initial option for appointment.
You may wish to remain in charge of your affairs as long as possible, or have concerns about others making decisions for you, and prefer a conservative standard. If you are highly confident in your chosen decision-makers (e.g., it is your spouse of 40 years), you may be comfortable with a less rigorous process.
The goal of an estate plan should be to strike the right balance between convenience, objectivity, and timeliness.
In addition, you can create provisions in your estate plan to compensate those you name to act on your behalf while you are incapacitated.
The people you name to make decisions for you may not expect to be paid. But reimbursing them for expenses they pay while managing your affairs, such as legal fees and accounting costs, and compensating them for time spent not working can help ensure that all of the necessary legwork (and paperwork) is performed during your incapacity.
Plan for Incapacity to Avoid Estate Planning Gaps
Like death, incapacity looms large, especially as you get older. Acknowledging the very real risk of incapacity is the first step in addressing it. The next step is meeting with an attorney and taking action to build incapacity contingencies into your estate plan.
If you would like to discuss incapacity planning, please reach out to Attorney Chuck Murray today to schedule an appointment.
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