Estate planning, when done properly, accomplishes more than just planning for the division of your property after you are gone. In fact, I always stress to my clients the importance of planning for the possibility of their own incapacity as well. As an estate planning attorney, I have seen firsthand what happens when incapacity strikes and there isn’t a plan in place. If you own property, it is particularly important to have a plan in place for the management of that property during your incapacity.
Incapacity Can Happen
When I broach the subject of incapacity planning with many of my clients, they don’t immediately understand the need to plan for the possibility of their own incapacity. They often equate the likelihood of incapacity with old age. As I explain to them, the risk of becoming incapacitated does increase as you age; however, incapacity is not limited to the elderly. The reality is that incapacity can strike anyone at any time. Clients are often shocked to learn that throughout your working years (prior to age 65), you stand a one in five chance of suffering a period of disability lasting five months or more. The truth is that a debilitating illness or a catastrophic car accident could result in your incapacity at any age. So the question I often pose is: If you were to become incapacitated tomorrow, who would take over the management and control of your assets?
Options for Managing Property While You Are Incapacitated
The answer to the question I just posed will depend on whether you planned ahead or not. If you cannot manage your assets, someone must do it for you. That person must have the legal authority necessary to step in and take over. There are several ways in which that authority can be granted, including:
- Jointly owned property – if you are married, the odds are good that you own many assets jointly with your spouse. The law and your bank or other financial institution will also allow you to be co-owner with a parent or adult child as well with friends or business partners. This is always a bad idea if the reason is to allow that person to asset you in the event of incapacity. Joint ownership can expose jointly owned assets to know or future creditors of the co-owner and call significantly change the outcome of your estate plan. There is always a better idea. Read on.
- Power of Attorney – a Power of Attorney (POA) is a legal document that allows you (the Principal) to grant another person (the Agent) the legal authority to act on your behalf in legal transactions. A POA can be general or limited. If you executed a general POA is will allow the Agent to manage your property during a period of incapacity if it is also a durable Making a POA durable simply means that the authority granted in the document survives the incapacity of the Principal. Under the new Uniform Power of Attorney Act in North Carolina, a Power of Attorney is durable unless is says it is not. If you executed a limited POA, the assets and types of transactions you are concerned about would need to be specifically mentioned in the POA to expect the powers to be effectively used.
- Revocable living trust – a revocable living trust is among the most popular of all incapacity planning tools. It works by allowing you to appoint yourself as the Trustee of the trust you create and then transferring your assets into the trust. You also appoint the person you wish to take over control of your assets in the event of your incapacity as the Successor Trustee. If you become incapacitated, your designated successor is automatically elevated to the position of Trustee where he/she can control all the assets held in the trust for the duration of your incapacity. I love the Living Trust for incapacity planning because it also affords the option of you elevating your Successor Trustee to the position of Co-Trustee and sharing power with them. In this case, they are able to help you without the downsides of the power of attorney (such as changing the estate plan or exposing the assets to the Agents creditors) while allowing you to retain access and control over your assets as well.
- Guardianship – if you fail to plan ahead for the possibility of your own incapacity, a court may be forced to granted someone guardianship over your estate if you become incapacitated. As your guardian, the court would grant the individual the authority necessary to manage your legal affairs and control your assets. The obvious drawback to this option is that you have no input into who is appointed as your guardian nor over how they manage your assets.
Guardianship is the option of last resort for obvious reasons. While joint ownership may work for some assets, it rarely works for all assets. A durable general POA, in theory, should work; however, your Agent may run into problems with third parties accepting the Agent’s authority. A revocable living trust is, by far, the best option to plan for the management of property during incapacity. You must, however, plan ahead if you want to have a trust in place in the event of your incapacity.
Contact Chapel Hill Incapacity Planning Attorneys
If you have additional questions or concerns about planning for the management of property during your incapacity, please contact the Chapel Hill, Raleigh, Durham area incapacity planning attorneys at Clarity Legal Group® by calling us at 919-484-0012 or contact us online.