Most people believe that an estate plan consists of one legal document, the Will, which is more completely known as a Last Will and Testament. However, your Will doesn’t become effective until you pass away. In fact, a Will doesn’t have any legal effect whatsoever while you are alive. This causes some estate planning lawyers to tell clients, “The problem isn’t what if you die, the problem is what happens if you don’t.”
Statistics tell us that most people will suffer some period of incapacity before they die. That period of incapacity might last two days, two weeks, two months, or two years. When a person becomes incapacitated and can no longer manage their own affairs, loved ones may not be able to take control of financial affairs without extra legal hassles and red tape. So what are the options?
Guardianship/Conservatorship
If the incapacitated person has not made any arrangement for transferring control of themselves or their assets, the closest next of kin will be required to file a legal action in court called a guardianship or conservatorship. Sometimes this process is called a “living probate” because it is intended to transfer control over the incapacitated person and their estate through the state court system. Generally, “guardianship” refers to the person appointed to care for the incapacitated person, and “conservatorship” refers to the person assigned to taking care of the finances of the incapacitated person. “Full guardianship” generally means that one person is named as both the guardian over the person and conservator over the money.
Guardianship/Conservatorship proceedings can be expensive, time consuming, and stressful, because the family is required to “prove” incapacity and the court is likely to appoint a lawyer for the incapacitated person and perhaps a “court visitor” to make sure that the rights of the incapacitated person are not violated prior to the final decision of incapacity. After the court appoints a guardian or conservator, that individual must provide an annual report or accounting to the court. The proceeding for guardianship remains pending in the court until the incapacitated person passes away, which sometimes is a number of years.
Power of Attorney
A power of attorney is the legal document that empowers another person to act on your behalf during your lifetime. A power of attorney that is effective now and upon disability is called a “durable power of attorney,” which is the document that we generally recommend as part of an estate plan.
The person who creates the power of attorney is called the principle. The person named in the power of attorney is called the agent. You can name more than one person to serve as agent and include successor agents if your first choice is unable or unwilling to serve.
Health Care Directive
A Health Care Directive, some-times called the Health Care Power of Attorney, gives your agent the ability to make decisions about your medical care during your lifetime. The document may also include “end of life” decisions that you select. The Health Care Directive avoids having to apply to a court to name a guardian.
We recommend that all of our clients have a current durable power of attorney and health care directive to provide legal authority to family or loved ones if you become incapacitated for any reason.
Living Trust
A living trust is a contract between a Trustmaker and a Trustee to hold and manage property and financial affairs for the benefit of the beneficiaries. While you are alive and well, you are the Trustmaker, Trustee, and Beneficiary of your own Trust.
In your Trust you can name “Successor Trustees” to take over management of the financial assets in the trust at your death or disability. Typically a trust has a clear definition of “incapacity” that indicates when the Successor Trustees can take charge of the finances.
If you feel you would like to create or review the legal documents necessary for a smooth transition of your affairs upon incapacity, call our office to set an appointment and we will be happy to help.