Death is the elephant in the room when talking about estate planning with clients. To avoid causing undue distress, we often skirt the issue, referring to heirs and beneficiaries or using terms like 'pass away' or 'pass on'.
This is a matter of professional courtesy. Clients need not be reminded of death’s inevitability. It is why they engage in estate planning. They know they will not be around forever and need to plan for their families, businesses, and legacies.
Lawyers help clients face hard facts head-on and develop solutions, albeit with a gentle touch. This extends to discussing another sensitive but important topic—what clients want to happen if they are alive but no longer able to manage their own affairs (sometimes called being incapacitated).
Everyone dies. Not everyone becomes incapacitated. But the odds—and consequences—of suffering incapacity are higher than people might think.
Incapacity is the inability to manage one’s affairs. It can arise from various causes, including illness, injury, and cognitive decline. Often conflated with disability, incapacity and disability are different. A disabled person can be incapacitated, but disability does not necessarily involve incapacity.
Someone in a serious car crash, for example, may have injuries that affect their mobility but not their cognition and communication. They might not get around without assistance, but they can still make important decisions about their financial, property, legal, and healthcare affairs.
Most states that have laws governing incapacity in adult guardianship or conservatorship proceedings (the term used may vary by state) statutorily define what it means to be incapacitated. These definitions typically include several components, including medical, functional, and cognitive elements.
The legal standard for declaring someone incapacitated varies by state. Still, for estate planning, it comes down to whether a person has mental or physical impairments that render them unable to decide for themselves and require someone else to decide for them about their medical care and their finances.
Clients need not rely on their state’s legal definition of incapacity to dictate when decision-making authority should be transferred to another person. Instead, they can define incapacity in their estate planning documents. Some clients want their loved ones, physicians, or a combination of the two to make the determination. At Altman & Associates, we prefer not to use disability panels because they are cumbersome and sometimes lead to inaction or dissension. Also, going to court to determine disability is time-consuming and costly. The easiest approach is for the client to recognize their incapacity and resign. Alternatively, most clients are comfortable with only one doctor determining incapacity, though some clients want two doctors to make that decision. Many times, our clients feel comfortable with their named successor Trustee to make the determination if the client is incapacitated. Most of the time, our powers of attorney are effective immediately, thereby eliminating the need to determine disability, though some clients want their power of attorney to be effective only upon incapacity. In those instances, we use the same provisions that are in our trust documents.
Some clients want to remain in control or have concerns about others deciding for them and prefer a conservative standard. Others are more confident in their decision-makers and comfortable with a less rigorous process. The goal of an estate plan should be to strike the right balance between convenience, objectivity, control, and timeliness.
A crucial point to remember during discussions with your lawyer is that, without an estate plan, the determination of incapacity and the selection of a decision-maker could be left to the court. And remember that you are granting someone authority, and that can always be changed. The only way to force you to listen to someone’s authority is called guardianship.
Lawyers are accustomed to discussing disability with clients when creating a plan for what happens if they are too sick or injured to work.
Around one in four 20-year-olds will become disabled before retirement,1 and there is a roughly 70 percent chance that an adult age 65 and older will need long-term care in their remaining years.2 Unfortunately, nearly three-quarters of Americans live paycheck to paycheck and are not financially prepared for disability.3
Here are facts about incapacity you and your clients may not know:
A client can not only name a decision-maker for a period of incapacity in their estate plan, but also make provisions in their plan to compensate someone, like an agent under the power of attorney.
Often, the agent is a family member who may not expect to be paid. However, by providing compensation or reimbursement to the agent for expenses incurred while managing their affairs, such as legal fees or accounting costs, and for their time, a client can provide incentives and resources to ensure that the necessary legwork (and paperwork) is performed during their incapacity.
If death is the elephant in the room in estate planning discussions—the obvious issue nobody wants to name—then incapacity is the issue that a client may never see coming.
Incapacity can happen at any age and has many causes. An estate plan that addresses only what happens to a client’s assets after death, without addressing who can decide on their personal affairs if they become temporarily or permanently incapacitated, is missing a core piece.
The purpose of discussing incapacity should not be to scare clients, but to highlight its real possibility and the need to be prepared through comprehensive estate planning. You can talk to our team at 301-468-3220 or via our website at altmanassociates.net.
