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5 Essential Legal Documents You Need for Incapacity Planning

Comprehensive estate planning involves more than just planning for your legacy after your
death, avoiding probate, and reducing taxes. Good estate planning also appoints people to
make legal, financial, and medical decisions for you if you are alive but unable to make those
decisions for yourself (in other words, if you are incapacitated).

What happens without a plan for incapacity?

Without a comprehensive plan for your incapacity, your family will have to go to court to have a
judge appoint a guardian and conservator to make healthcare decisions for you and manage
your money and property. A guardian will make all personal and medical decisions on your
behalf as part of a court-supervised guardianship. A conservator will make all financial and legal
decisions on your behalf as part of a court-supervised conservatorship. These roles may be
filled by the same person or by two different people, depending on the circumstances. Keep in
mind that the court may not appoint the person or people for these roles that you would have
chosen. Until you regain capacity or pass away, you and your loved ones will have to endure
expensive, public, and time-consuming court proceedings, which may include filing annual
reports and obtaining prior judicial approval for certain actions.

Overall, there are two aspects of incapacity planning that must be considered: financial and

Finances during incapacity. If you are incapacitated, you are legally unable to make
financial, investment, or tax decisions for yourself, but your bills still need to be paid, tax
returns still need to be filed, and investments still need to be managed.
Healthcare during incapacity. If you are unable to communicate (for example, if you
are in a coma or under anesthesia), you will not be able to make healthcare decisions for
yourself. Without a plan, your loved ones may even be denied access to your medical
information during a medical emergency. They may also end up in court, fighting over
what medical treatment you should or should not receive (like in the case of Terri
Schiavo, whose husband and parents did for 15 years).

To avoid these problems, you should have these five essential legal documents in place before
becoming incapacitated so that your loved ones are empowered to make decisions for you:

  1. Financial power of attorney. A financial power of attorney is a legal document that
    gives your trusted decision-maker (the agent) the authority to pay bills, make financial
    decisions, manage investments, file tax returns, mortgage and sell real estate, and
    address other financial matters for you that are described in the document. Financial
    powers of attorney come in two forms: immediate and springing. An immediate durable
    power of attorney allows your agent to act for you as soon as you sign the document. A
    springing power of attorney, on the other hand, is legally valid when you sign it, but your
    agent can only act for you after you have been determined to be mentally incapacitated.
    It is important to note that some states, such as Florida, do not recognize springing
    financial powers of attorney. There are advantages and disadvantages to each type, and
    we can help you decide which is best for your situation.
  2. Revocable living trust. A revocable living trust is a legal document that has three
    parties to it: the person who creates the trust (also known as the trustmaker); the person
    who legally owns and manages the accounts and property transferred into the trust (the
    trustee); and the person who benefits from the accounts and property transferred into
    the trust (the beneficiary). In the typical situation, you will be the trustmaker, the trustee,
    and the beneficiary of your revocable living trust while you are alive. If you ever become
    incapacitated, your designated backup trustee will step in to manage the trust’s accounts
    and property for your benefit. The terms of the trust that you create will specify how the
    trust’s accounts and property are to be used (for example, you can authorize the trustee
    to continue to make gifts to charities or pay tuition for your grandchildren).
  3. Medical power of attorney. A medical power of attorney, also called a medical proxy,
    healthcare proxy, designation of healthcare surrogate, or a patient advocate designation,
    allows you to name a person (your agent) to make medical decisions on your behalf
    when you cannot communicate them yourself.
  4. Advanced directive or living will. An advance directive or living will shares your
    wishes regarding end-of-life care if you become incapacitated. Although a living will is
    not necessarily enforceable in all states, it can provide meaningful information about
    your desires—even if it is not strictly enforceable.
  5. HIPAA authorization. A Health Insurance Portability and Accountability Act
    authorization gives your doctor authority to disclose medical information to the people
    you name in the document. This is important because health privacy laws may make it
    very difficult for family members or loved ones to learn about your condition without this
    release. While this document does not give a person authority to make medical
    decisions, it can help alleviate tensions by keeping everyone on the same page
    concerning your condition.

Is your incapacity plan up to date?

Once you create all of these legal documents for your incapacity plan, you cannot simply stick
them in a drawer and forget about them. Instead, you must update and review your incapacity
plan periodically and when major life events occur, such as moving to a new state or getting
divorced. If you keep your incapacity plan up-to-date and make the documents available to your
loved ones and trusted helpers, it should work the way you expect it to if needed. If you need to
create or update your incapacity plan, please give us a call.


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