Incapacity can affect anyone—young or old—and can present unexpectedly, such as in the case of a sudden accident or debilitating health condition. Putting in place the right estate planning tools can ensure that an individual’s wishes are respected and their assets managed appropriately, should they become incapacitated. This article will discuss the key estate planning documents that should be put in place when planning for incapacity. It will also address the circumstances under which court intervention may be necessary if an individual lacks capacity and does not have the appropriate estate planning documents in place.
Estate Planning Tools for Diminished Capacity
Several estate planning documents are specifically designed to take effect when someone becomes incapacitated. These documents allow an agent to step in to manage the individual’s affairs consistent with the estate planning document and the individual’s wishes. They include:
- Powers of Attorney: A durable power of attorney allows an individual to appoint an agent, also called an attorney-in-fact, to manage their financial affairs if they become incapacitated. The attorney-in-fact can be legally authorized to handle tasks such as paying bills, managing investments and real estate, handling court claims, and managing benefits. When planning for incapacity, a key consideration is choosing a trustworthy attorney-in-fact who understands the principal's preferences and values. If an individual becomes incapacitated and does not have a power of attorney in place, the court may need to appoint a conservator to manage the individual’s affairs.
- Healthcare Directives and Living Wills: A healthcare directive or medical power of attorney designates someone to make medical decisions on behalf of the individual if they are incapacitated and unable to do so. The health care directive or a separate document called a living will outlines an individual’s preferences for medical treatment in situations where they cannot communicate their own wishes. This can be related to life-sustaining treatment and end-of-life care. If an individual becomes incapacitated and does not have a health care directive or living will in place, the court may need to appoint a guardian of the individual’s person to make medical decisions on their behalf.
- Revocable Living Trusts: A revocable living trust allows an individual to place their assets in a trust, managed by a trustee. The individual can appoint a successor trustee to take over in the event of incapacity or at death. Establishing a revocable living trust can help avoid probate and provide a seamless transition of asset management from the individual to their selected successor trustee.
Other Important Considerations and Key Questions for Clients
When planning for potential incapacity, estate planners should ask their clients several critical questions:
- Do you have a current and comprehensive list of your assets and liabilities?
- Do you have a plan in place for the potential long-term care costs?
- Who do you want to make financial decisions for you in the event of incapacity?
- What are your preferences regarding life-sustaining treatments and end-of-life care?
- Who do you want to make healthcare decisions for you in the event of incapacity?
- Have you discussed your wishes regarding your financial and medical care with your chosen agents?
These questions help ensure that clients have considered all aspects of their future needs and have chosen appropriate individuals to act on their behalf.
Court Action for Individuals Lacking Capacity
If someone does not have the abovementioned tools in place and becomes incapacitated, it may be necessary to seek court intervention through a conservatorship and guardianship proceeding to secure the appointment of someone who can manage the individual’s financial and medical affairs.
Generally speaking, conservatorship is the legal process of determining a person’s ability to make financial decisions, and guardianship is the legal process of determining a person’s capacity to make decisions about their personal affairs, such as living arrangements and healthcare. A person typically becomes subject to a conservatorship and/or guardianship after a hearing and a finding by a court that (1) the person is incapable of effectively making financial and/or personal decisions and (2) a conservatorship and/or guardianship is necessary to meet the individual’s needs.
To obtain the appointment of a conservator or guardian for someone who is incapacitated, a person interested in the welfare of an individual, such as a family member, must file a petition with the court. The petition must contain supporting evidence of incapacity, such as a letter from a treating physician. Notice of the petition seeking an appointment of a conservator and/or guardian must be provided to the person for whom the guardianship and/or conservatorship is sought. In addition, the person for whom a guardianship and/or conservatorship is sought generally has an absolute right to be present at the hearing.
If the matter is uncontested, meaning that neither the individual for whom the conservator and/or guardian is sought nor any other interested party objects, a conservator and/or guardian can often be appointed after a fairly straightforward hearing during which a judge will review the petition and supporting evidence.
If the matter is contested, however, it can often devolve into full-blown and costly litigation. A matter may be contested by the individual for whom the conservatorship and/or guardianship is sought or by any interested person, such as a family member. In contested matters, disagreements may arise about whether an individual is truly incapacitated, who should be appointed as conservator and/or guardian, or the extent of the conservator’s or guardian’s powers, if appointed. Because of the circumstances giving rise to most conservatorship and/or guardianship proceedings, the cases can often be complex and emotionally charged. Contested matters may involve additional medical evaluations of the individual for whom the conservatorship and/or guardianship is sought, discovery, mediation, and trial.
Conclusion
Estate planning is vital to ensuring that an individual's wishes are respected and their affairs are managed effectively in the event of their diminished capacity or incapacity. Utilizing tools like powers of attorney, healthcare directives, living wills and trusts can provide peace of mind and avoid the need for court intervention. However, when appropriate planning is not in place, court action may become necessary to protect the individual’s interests. By asking the right questions and considering all potential scenarios,advisors can help clients create comprehensive plans that address their future needs and provide clear directives for managing their affairs.
Beth Morrison is Counsel, and Amy Erickson is an associate, both at Lathrop GPM.