Incapacitation: A Hidden Estate Planning Risk
Many people assume that estate planning is only for challenges that arise after you pass away. To a large extent, that assumption is correct. Estate planning can be used to minimize probate costs, manage taxes, and distribute your assets to your loved ones in the manner that you wish.
However, it can also be used to manage end-of-life issues that can erode your estate. One such issue is incapacitation, which is the inability to make or communicate decisions about your health care or finances. Incapacitation is often caused by things like Alzheimer’s, strokes, and cognitive disorders.
Incapacitation is a threat to your estate because it puts control of your finances in someone else’s hands. Without clear direction from you, your loved ones may take over your financial management, and they may not do so in a manner that is consistent with your wishes.
There’s also the threat incapacitation poses to your health care. You may have specific thoughts or wishes about how you should be cared for in the final months or years of your life. Again, without direction, your loved ones and doctors will be forced to make those decisions on their own.
Below are a few tools you can use to manage incapacitation risk and minimize its impact on your estate. If you haven’t addressed incapacitation risk, now may be the time to do so.
Powers of Attorney
One effective tool for managing incapacitation is power of attorney documents. A durable power of attorney allows you to designate a specific person (“agent”) as your legal and financial decision maker should you become incapacitated. A healthcare power of attorney does the same thing, but with medical decisions.
Clearly, your agent should be someone you trust. Also, you should consider discussing your wishes with your agent in advance. That way, they can make financial and medical decisions that are aligned with your goals.
Joint ownership is simply the process of adding an additional owner to certain assets or accounts. The joint owner has the ability to make all the same decisions that you could make for yourself. If you become incapacitated, the joint owner simply takes over management of those accounts. Obviously, the joint owner should be someone you trust. Be aware of the potential legal and tax implications with joint ownership.
A living trust is another way to manage incapacitation risk. You simply create the trust and retitle specific assets to be owned by the trust. In the trust document you also appoint a successor trustee, who takes over management of the assets should you be physically or mentally unable to do so. Keep in mind, your successor trustee may have full authority over these assets, so it’s important to choose someone who has your best interests at heart.
No matter which tools you choose, be sure to discuss your wishes and your planning with your loved ones. It may not be an enjoyable conversation, but it’s an important one.
Ready to protect your estate from incapacitation? Let’s talk about it. Contact us today at Grand Canyon Planning Associates, LLC. We can help you analyze your needs and develop a strategy. Let’s connect soon.