With modern technology and medicine, we are living longer than ever. With increased age comes an increased chance of disability and not being able to take care of ourselves. Fortunately, proper estate planning will use incapacity planning strategies that will help you take care of yourself and your loved ones. A lack of planning can have severe consequences for everyone.
“Living Probate”
If you have property in your own name and at some point in time become unable to make financial or medical decisions your yourself, you are considered financially or medically disabled. Once that determination is made, and if you do not have adequate incapacity planning, only someone appointed by the court can make those decisions for you. A will does not help you in this situation because a will only kicks in once you die. Some assets, such as real estate, require all the owners to sign to close a transaction. That means that if you are disabled, your spouse will have to go through the probate court to get authorization to sign for you.
This situation is called “living probate.” It is called this because the general process is similar to the probate process to administer a will. Of course, you have not passed away, so it is called “living probate.” Because the court supervises any financial or medical decisions, this process is slow and costly. The appointed person has to make annual reports to the court, there has to be regular determinations of your incapacity or disability, and attorneys, doctors, guardians, and accountants will very likely be involved. Your assets would be used to pay all these individuals and court costs, and your situation is generally a public proceeding. This situation continues until you either regain capacity or pass away, which can last for an indefinite period of time.
A Trust Avoids “Living Probate”
Proper estate planning will take into account the possibility that you may become disabled. A trust, with all your assets put into it, avoids living probate. This is because you do not have any property in your name, but rather the trust. Therefore, there is no need to go to a court to get authority to manage your assets. Rather, your Successor Trustee can seamlessly being taking care of your property for your and your loved ones’ benefit. You chose who your Trustee would be, so you do not need to worry about the judge appointing someone in living probate that you did not want. The Trustee is also not supervised by the court, so there is less costs and time needed to take care of your property.
Other Disability Documents
A trust is not the only strategy that you need to use to prepare for disability. Here are some other documents that you need to have:
General Durable Power of Attorney
This document empowers someone to act as your agent for any property not in your trust for any reason.
Medical Power of Attorney
This documents gives someone the authority to make medical decisions for you if you are not capable of making them yourself.
HIPAA Waiver
This document tells your doctors that they are allowed to talk about your medical situation with the individuals listed on this document. This will normally include your Trustee, Agents under your Powers of Attorney. You may include family members if you desire.
Additional Disability Strategies
Planning strategies to address the possibility of becoming disabled are not limited to documents. You may also want to consider long-term care insurance to help cover non-medical costs or disability income insurance to replace income that you lost because of your disability.
If you are a business owner, you may want to get insurance that will help pay for operating expenses or a buy-sell agreement in case a co-owner becomes permanently disabled.
No one really expects or plans on becoming disabled. While it may not happen to you, it is wise to make plans in case it does happen to you.