SENIOR SCENE: Estate planning in case of incapacity


Wesley Harris - Submitted photo
Wesley Harris - Submitted photo

One of the most important estate planning documents for all persons over the age of 18 to consider is a durable power of attorney. The primary purpose of a power of attorney is to set forth and appoint an agent, also known as an attorney in fact, who will serve to make decisions over business and financial matters in the event a person becomes incapacitated or disabled.

In most instances, the power of attorney becomes effective at a future date, which is usually either at the time a person signs a subsequent written authority to act under the document, or at the time the person is determined to be incapacitated. A well-drafted power of attorney will set forth how a person is determined to be incapacitated and normally sets forth a standard whereby the person's primary treating physician must sign a notarized statement indicating the person is incapacitated. This type of power of attorney is often called a "springing" power of attorney, meaning the power of attorney springs into effect at some future event, i.e. your disability.

A durable power of attorney allows you to appoint who you trust to manage your personal and business affairs in the event of your incapacity. It can be customized to include broad powers or may be limited and restricted to only specific transactions. Please note that a durable power of attorney has nothing to do with an attorney managing your affairs, as typically you appoint your spouse and/or children to serve as your agent under the power of attorney.

A second method to avoid the complications of a guardianship is to place your assets in a revocable living trust, which is an estate planning device that provides for asset management during your lifetime and which also provides for disposition of your assets, without probate, upon your death. Since the assets in a revocable living trust are to be managed by the person you name as your successor trustee, these assets can be managed in the event of your incapacity, thereby eliminating the need for a guardianship. Properly set up estate plans often utilize both a durable power of attorney as well as a revocable living trust to provide for disability management.

Unfortunately, many people fail to set up a durable power of attorney and in the event they become incapacitated, their family is forced to go to court to have a person appointed by the court to manage their affairs. This court procedure is commonly referred to as a legal guardianship. A guardianship is a complicated and cumbersome legal proceeding that is designed to protect the interest of the incompetent individual. It often and rightfully deemed to be a "living probate." The person who is appointed as guardian is required to file annual accountings with the court documenting how all of the funds are used. In addition, the guardian is often required to post a surety bond, which is designed to protect the assets in case of improper use. Surety bonds have expensive premiums as they are an insurance product. This type of expense could be avoided with a properly structured power of attorney.

The author would like to point out that there are times when even a properly constructed power of attorney does not suffice in terms of eliminating the need for a guardianship. This typically occurs when the incapacitated person verbally expresses a desire to either revoke the power of attorney or refuses to follow the guidance of the appointed agent under the power of attorney. Hospitals and long-term care facilities are reluctant to rely on the authority granted under a durable power of attorney when the person who created the power of attorney is expressing disapproval of its use. Under these circumstances, the institution may request a court-appointed guardian as that provides them with more protection for relying on the decisions of the guardian.

In most cases, a person's assets and affairs can be properly managed by their family under a power of attorney. Avoiding the necessity of a guardianship proceeding by setting up such a disability management plan is a critical step in setting up your estate plan. An attorney skilled in estate planning matters can assist you in setting up and implementing the necessary documents to ensure your estate plan will be successful, and to ensure that you have a disability management plan in place in the event of incapacity.

Wesley Harris is an associate attorney at Farrar & Williams, PLLC and can be contacted at 501-525-4401 or by email at [email protected]. Wesley can answer any questions you have about this subject.

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