What About Me?
An often-overlooked part of estate planning is planning for mental disability. Many of us have been in the uncomfortable position of having to take care of a relative or friend who can’t handle his or her financial affairs anymore. It could happen to you one day.
Part of the definition of estate planning used by many members of the National Network of Estate Planning Attorneys is “I want to control my property while I am alive and well; [and] plan for me and my loved ones if I become disabled.”
There are four basic planning choices:
- No planning;
- Power of Attorney;
- Standard Trust; or
- Counselling Oriented Trust.
As we examine these options, we’ll consider these issues, and others:
- Who decides when I lose control?
- Who takes control?
- Who gives instructions to the person who takes control?
In most states, if not all of them, if you haven’t planned for when you are disabled, your loved ones (or maybe your creditors) will have to hire an attorney and go to court to ask the judge to declare you mentally incompetent. The judge may appoint a second attorney to make sure that you have a fair trial. After taking evidence in a public hearing, the judge will decide whether you are disabled, and, if so, appoint a guardian or conservator or both to handle your affairs. Will the judge appoint a family member? Maybe, maybe not. The judge will decide what the guardian can do and will require regular reports on how your property is invested, cared for, and spent. Every state’s system is a bit different, but they all have one thing in common: the judge, not you, is in control. At least you get to pay for all this.
Many years ago, attorneys started using General Durable Powers of Attorney (GDPOA) to prevent guardianship proceedings. A Power of Attorney appoints someone (sometimes, but not usually an Attorney-at-Law) as your “Attorney in Fact”, or agent. “General” means the powers granted are very broad. “Durable” means it remains in effect after you are mentally disabled. GDPOA’s are usually effective immediately, have no reporting requirements, no personal instructions, and have extremely broad powers. If you look up “lack of control” in the dictionary, is this likely what you will see? At least you pick the agent, so it had better be someone you trust.
Another common problem with Powers of Attorney is that nobody has to accept them. If the bank won’t take your Power of Attorney when it is needed, what do you have to do? Go back to a Guardianship proceeding. Some institutions hesitate to accept Powers of Attorney because of a fear of liability – they worry about whether it is being abused, whether it has been revoked (if it is very old), or whether you were of sound mind when you signed it (if it is very new).
Standard Living Trusts are often little more than word-processing. There is no attempt to prepare a personalized plan, so they often use a standard definition of disability. Here’s one I used to use:
“Incapacity of any beneficiary or Trustee shall mean shall mean inability to conduct business affairs and shall be deemed to exist or terminate when so certified in writing by a physician (or 2 physicians) in good standing in the community then attending the person to whom such certification applies.”
Summed up, this means that your evil son-in-law’s proctologist (maybe his podiatrist has to concur) can declare you incompetent. These Trusts typically have few personal instructions, but they do provide for a private transfer of control to personally selected trustees.
Trusts prepared with a counseling-oriented approach, such as NNEPA’s Three-step strategy, provide a personalized definition of disability through a disability panel. When your loved ones start to think that it’s time for you to turn control over to somebody else, they can call the disability panel together and the panel will decide whether you are disabled. The panel operates by rules you set up. Who’s on it? You decide while you’re healthy. Do they have to be unanimous, or will a majority do? You decide.
Here are some examples of panel members we’ve considered:
Your Primary Care Physician
Your Spouse
A 2nd Doctor selected by your Primary Care Physician
An Adult Child
Clergy Member
Another Relative
A Regular Caregiver
A Friend
A Professional Colleague
A Boss or Co-worker
A Neighbor
Your Bookie or Bartender (we didn’t actually use either of these)
A Professional Adviser, such as your accountant.
Whom do you pick? Someone close enough to you to know there’s a problem – whom you’ll trust when they say, “I love you: it’s time to let someone else take care of your affairs.”
Then who does take care of you? The Successor Trustee and the Medical Attorney-in-fact you chose when you were well. How do they care for you? That depends upon the instructions you’ve left behind. I often ask my clients “When you need somebody to take care of you, would you rather be cared for in your own home, in somebody else’s home, or in a nursing home?” Everybody has their own opinion, but most estate plans don’t answer that question.
Many of my clients have opinions on things like whether they want visitors or whether they want music played in their room, I have clients who want to make sure somebody does their hair and makeup. That isn’t trivial; it is part of your family’s memory of you. When your family knows your wishes they’re more likely to be granted.
Finally, tax deferred retirement plans (such as IRA’s and 401(k)’s) need to be addressed separately. There cannot be owned by trusts and still get the tax deferral that makes them so attractive. So, we will need to use a Limited Durable Power of Attorney (like a GDPOA, but with limited powers) to appoint someone to control those accounts. Because institutions don’t have to accept these, it is a good idea to either get advance approval of your LDPOA, or use the institution’s own Power of Attorney form.
As our life expectancy grows, many Americans will go through a period of disability. Planning for your own care has become critically important, as families have become more mobile and fragmented. With proper planning, you can be well cared for in the way that you want, by the people you have chosen, for the rest of your life.
| No Planning | POA | Standard Trust | Counselling Trust | |
|---|---|---|---|---|
| Who decides when disabled? | Judge | Agent or Holder | ny doctor (or 2) |
Disability Panel |
| Who takes control? | Guardian (or Conservator) | Agent | Successor Trustee | Successor Trustee |
| Who gives instructions? | Judge (or Commissioner of Accounts) | Usually none | Usually none | You do, through the trust |
| Other Issues | Expensive, Public |
Might not be accepted by 3rd parties | If not funded, you have to rely on POA | Takes some time and effort |
Jon S. Graft, JD, LLM, Member of the National Network of Estate Planning Attorneys and the Virginia State Bar.