Generally, incapacity refers to a person's inability to take care of routine tasks on their own, such as eating or dressing or even managing their finances. No one wants to believe they will get to a point where they can no longer feed themselves or pay their bills, but it's essential to have a plan in place.
How Can I Plan for Incapacity?
Many people utilize a Revocable Living Trust to plan for possible incapacity. Why a trust instead of a will? A trust provides legal protection for your assets by taking them out of your name and placing them in a separate entity of which you are the settlor or trustee. As long as you are able, you will control how those assets are distributed, and you will name a successor trustee to manage the trust upon your incapacitation or death.
In contrast to an Irrevocable Trust, a Revocable Living Trust is a trust that allows you to revoke (change or terminate) during your lifetime. That means you can make the same decisions as before, but your assets are in the trust's name rather than your own.
Generally, an Irrevocable Trust is not used to plan for incapacity like a Revocable Living Trust. You want to retain the power to change any designations you make when planning for incapacity. A Revocable Living Trust gives you the ability to make those changes, while an Irrevocable Trust may not. However, an Irrevocable Trust can be used in long-term care planning to help protect your assets if you need to use Medicaid benefits in the future.
With a Revocable Living Trust, you can establish a disability panel. A disability panel is a group of people designated by you in the trust document, usually family, close friends, and/or physician(s) that votes as to whether or not you are still able to serve as trustee for your trust. The disability panel votes, if needed, on whether you are incapacitated. As the trustmaker, you would have already designated who you want to step in and take over managing your trust assets if your disability panel deems you incapacitated.
By having control over the disability panel and your successor trustee(s), you lessen the chances of someone trying to take advantage of you, which could result in the courts deciding for you.
Some trustmakers opt for a physician's determination of incapacity instead of a disability panel. Maybe you do not have enough people close by that you would want on a disability panel, or you would prefer your physicians make that decision.
When clients opt for a physician's determination for incapacity, they usually choose a requirement of at least two physicians agreeing that you, as trustee, are incapacitated and can no longer manage your trust assets.
How Do You Declare Someone Legally Incapacitated?
Suppose you have established a Revocable Living Trust and described how you want your potential incapacity to be handled. In that case, your designees will follow the directions contained within your trust document.
If you have a Will, the steps your loved one(s) would have to take would require more effort. Unfortunately, a Will cannot provide for incapacity as a Will does not take effect until your death. You can still utilize other documents to plan for incapacity, including a Living Will and Durable Power of Attorney. Still, these documents do not provide a way for your right to manage your assets to be taken away without a court process, known as guardianship.
With a Revocable Living Trust, if you are deemed to be incapacitated, you can be removed as trustee, but when you only have a Will, the only way for your trusted relative or friend to take over completely is through the guardianship process, which a time-consuming and often expensive court process.
For example, suppose you can no longer properly manage your finances and are writing checks to people or companies you should not be writing them to. In that case, your Durable Power of Attorney can take over the responsibility of writing checks on your behalf. Still, they cannot revoke your power to write checks. Therefore, the only way for your Durable Power of Attorney to revoke your ability to access your finances is to seek guardianship through the courts.
No one wants to imagine this would be them, but it does happen.
Need Help Planning for Incapacity?
At Carolina Family Estate Planning, we help families build better lives by planning for a secure future. Our team takes an all-inclusive approach to our client's long-term care and estate planning, including incapacity planning. We focus on building relationships with our clients, offering sound legal advice and expertise to help you make the best decisions for your family.
Our legal team will guide you with incapacity planning as part of your estate planning process and help you explore your legal and financial options regarding long-term care for you and your family. Contact us at Carolina Family Estate Planning at 919-587-8364 in Cary, North Carolina, or visit our website to schedule a needs-assessment call.