Using a Living Trust for Incapacity Planning

Incapacity Planning

It’s common to consider the possibility of incapacity in the same terms as retirement—something far off in the distance, confined to old age. However, accidents and unexpected health crises can transform your life in an instant. If you were unable to control your affairs tomorrow, what would happen to you, your property, your home, and your loved ones?

If you have a spouse, it’s likely that they would be appointed by a judge to act on your behalf. But this isn’t a certainty. And if you don’t have a spouse, then it’s even harder to predict who might end up with this responsibility. That uncertainty is why incapacity planning is so crucial.

While some individuals opt to simply draw up a power of attorney, powers of attorney don’t offer the ability to detail your exact wishes, potentially allowing too much leeway for the attorney-in-fact (the person granted authority by a POA). Additionally, attorneys-in-fact are often required by institutions to provide a great deal of proof of authority before being granted access to financial assets and other property. This can greatly complicate the process of paying for expensive medical care and other day-to-day needs.

Instead, a living trust—a document used to control the use and distribution of assets—is an excellent legal tool for ensuring that your wishes are carried out if you lose the ability to act on your own behalf, while holding your trustee to a high standard.

First, you need to meet with a lawyer and create a living trust.

When a client wishes to plan for incapacity, we typically create what is known as a ‘revocable living trust.’ A revocable trust is one that you may cancel when you wish, as long as you are mentally capable of making such a decision. In addition, you can choose to revise the trust as necessary.

As the creator of the trust, you can appoint yourself as the initial trustee (this is the usual approach), which grants you the authority to control any assets—your home, vehicles, bank accounts, retirement accounts, investment real estate etc.—that you place into the trust. Important assets that you wish to protect, and which will be needed to provide for your care, should be placed into the trust. In addition, the trust is used to specify what you want done with the property in the trust.

Then, you name a successor trustee. The successor trustee becomes the administrator of the trust in the event that you are no longer able to act as trustee. However, the successor trustee has no control over the trust as long as you are of sound mind.

This is one of the key strengths of a trust: While you are healthy, the trust doesn’t change anything about your day to day life. As long as you name yourself as the initial trustee, you continue to have full control over your property. But when you need it most, your trust will automatically take effect.

In your living trust, you can specify the level of incapacity necessary for the trust to take effect.

One of the key strengths of a trust is that you can be extremely detailed about almost every aspect of the trust, including what evidence of incapacity is necessary for the successor trustee to gain control of the trust.

For instance, you may require a letter from the physician treating you which states that you are incapacitated, or request the opinions of two independent doctors attesting to that fact. Either way, requiring independent verification of your incapacitation ensures that the administration of the trust is not affected by undue outside influence.

You can also specify that if you regain the ability to act on your own behalf, that you will regain control of the trust.

In addition to a living trust, you should have a power of attorney and other legal documents drawn up.

A living trust is a good way to make sure that your property and assets are properly managed and used to provide for your care if you are incapacitated. However, that alone is not enough, especially when it comes to making healthcare decisions.

There are three additional documents that you should have your estate planner draw up:

  1. A durable power of attorney. This grants your designated attorney-in-fact the authority to make healthcare decisions on your behalf when you are unable to do so.
  2. HIPAA Authorization. HIPAA regulations are extremely strict when it comes to disclosing medical information. A HIPAA Authorization allows the doctors treating you to disclose your medical information to the persons you name within the Authorization.
  3. A living will. A living will allows you to specify your wishes in the case that you are in a vegetative state. Many attorneys-in-fact find it very difficult to give doctors permission to withdraw life support, for obvious reasons. A living will allows you to remove this weight from their shoulders, while still ensuring that your wishes are carried out.

As the above should make clear, incapacity planning can be a lengthy, complex process. This is why it’s advisable to work with an estate attorney who is experienced in incapacity and end-of-life planning. If you would like assistance with this process, Toeppen & Grevious can help. For more information, give us a call at (916) 400-4516, or send us a message with our convenient contact form.