When most people think of estate planning, they think of what happens on their death. However, estate planning also includes what happens while you are still alive but unable to make financial or healthcare decisions. Incapacity can mean that you would need someone to pay your bills, file your taxes, attend appointments with you, etc.
What is Incapacity?
Incapacity refers to any period in which an individual is physically or mentally unable to manage their own affairs. A person must be incapacitated in order for a guardian or conservator to be appointed by the court to manage their affairs. This is different from testamentary capacity, which is the cognitive ability required to execute a valid will.
Testamentary capacity requires the testator (the person signing the will) to understand and connect three things: the nature and extent of their property, their heirs (what the law calls “the natural objects of your bounty”) and how their will is distributing their property.
Financial Power of Attorney
A financial power of attorney allows someone to pay your bills, file your taxes and manage your finances in general. If you are incapacitated and do not have a financial power of attorney, these tasks probably could not be completed without someone being appointed your conservator by the court.
The financial power of attorney can be springing or surviving. Springing means that it only becomes effective upon your incapacity. This typically requires a determination of your inability to manage your affairs by at least one physician. In Arizona, it is becoming increasingly difficult to have access to a physician, so it may be a good idea to allow other medical professionals to make the determination. Surviving means that the power of attorney is immediately effective and remains effective during your incapacity. We typically recommend making your financial power of attorney immediately effective. Requiring a doctor’s report will delay your agents ability to assist you in an emergency. The person you name as your agent should be someone you trust.
If most of your assets are titled to a revocable trust, then the person you name as your successor trustee is more important. The agent named on your financial power of attorney will have no access to assets titled to a trust.
Healthcare Power of Attorney
A healthcare power of attorney allows someone to make medical decisions on your behalf only when you are unable to do so yourself. If you are incapacitated and do not have a healthcare power of attorney, someone would probably need to be appointed your guardian by the court in order to make decisions for you.
Your healthcare power of attorney can include provisions granting mental health powers to your agent. Your agent will probably not be able to make decisions regarding your mental health, such as admitting you into a behavioral facility, without these powers. This is a good idea to prevent the need for a guardianship solely for the purpose of gaining mental health authority. It is not necessary to have a separate “mental healthcare power of attorney.” You can just include mental health powers in your healthcare power of attorney. If you are hesitant about granting this power to your agent, you should know that a doctor’s recommendation would still be required before you are admitted into a locked facility. It would be in your best interest to be admitted if you become a danger to yourself or others.
Does your will help plan for incapacity?
You really should have a will. But it doesn’t speak to your possible future incapacity. Necessarily, your will only becomes meaningful after your death.
But you could create a living trust. You can make it revocable and amendable. And you can transfer most (or, ideally, all) of your assets into the trust’s name. Then the trust becomes a useful tool for incapacity planning, too.
Our bottom line: If you have testamentary capacity, you should make sure your powers of attorney adequately plan for your incapacity. If you have a trust, it can also help plan for incapacity. While powers of attorney can allow someone to make decisions for you, they do not restrict your ability to make decisions yourself. A trust can and should be a tool to provide additional protection against a conservatorship.
