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How Is Incapacity Planning Actually Defined?


Incapacity planning simply means planning for someone to manage for you in the event that you are unable to manage your own financial affairs or make your own personal decisions due to some mental or physical disorder.

When Should I Work On Creating An Incapacity Plan?

You should work on creating an incapacity plan while you have capacity. Since we never know what illnesses or accidents could happen to us, we never know when we may lose capacity. I always advise people to plan as soon as possible for this.

What Should Be Addressed In An Incapacity Plan?

You want to be sure that someone can make medical and personal decisions for you. You want to be sure that they can do administrative things like signing your tax returns, deal with creditors and manage your finances.

What Type Of Details Need To Be Covered In an Incapacity Plan?

For each of these different areas, we need a different document to give authority to someone to act on the incapacitated person’s behalf. We will do a medical directive called an Advance Healthcare Directive, which allows for the physical and medical decisions. We will do a general power of attorney for the administrative and financial decisions. Depending on the assets involved, we may also need to include a trust in an incapacity plan.

What Aspects Of My Estate Plan Contain Provisions For Incapacity Planning?

It will be all of the documents in your estate plan with the exception of the will. The will is the one document in an estate plan that only has an affect after your death; it is never used in situations of incapacity.

Can I Choose More Than One Agent To Hold The Power Of Attorney?

It is possible to name more than one agent in a power of attorney. However, based on my experience, I don’t advise having more than one person at a time having that authority. For matters of practicality, it is better to avoid requiring two or more people to be present every time a decision needs to be made on the incapacitated person’s behalf. I recommend that the person names multiple parties in sequence, so there is only one person at a time with that authority. If that person cannot serve for whatever reason, then there is a successor named who can take their place.

What Is The Difference Between A Power Of Attorney And A Conservatorship?

A power of attorney is a document that a person creates during their lifetime that gives authority to another person (referred to as an “agent”) to make decisions for them. It can be in different areas, it can be very general or it can be very specific and limited. A conservatorship is like a guardianship but over an adult. This is a court procedure in which a judge determines that the person is incapacitated and that someone else needs to manage their financial and personal decisions to some extent. The conservatorship is very costly and very time-consuming. If it is a conservatorship of the estate to manage the person’s finances, then an accounting must be rendered to the court periodically for the rest of that person’s life. So, it’s an ongoing jurisdiction of the court that the conservator (the person in charge of the decisions) must continually report to the court on what they’re doing. It gets to be very cumbersome and difficult.

What Is The Role Of A Trust In Incapacity Planning?

A trust simplifies the management of assets if a person becomes incapacitated. A trust is like a corporation, so when a person creates a trust and transfers the assets to that trust, they no longer own the assets. They’re owned by this entity called the trust. A trust has provisions for who will take over and manage those assets in the event that the original creator of the trust becomes incapacitated. It is much more effective for managing things like brokerage accounts and bank accounts than a power of attorney is. Banks routinely ignore powers of attorney and that’s because many are fraudulent. If the banks have distributed money or closed accounts based on these fraudulent powers of attorney, then the bank must give that person back their money and the bank suffers the loss.

However, with a trust, the person whose account it is going to the bank ahead of time while they have the capacity, transfers the account to the trust and gives the bank copies of at least portions of the trust. Then, when the successor trustee comes in with information that that person is incapacitated, the bank is far more cooperative because it’s something that has been put in place by the account holder, and is therefore less likely to be a fraudulent transaction.

For more information on Incapacity Planning In California, a free initial consultation is your next best step. Get the information and legal answers you are seeking by calling (626) 385-6303 today.

Newell & Havens Attorney At Law

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