Critical Questions in Planning for Incapacity
What must one do upon an unfortunate medical diagnosis that suggests one will lose mental and physical abilities in the near term? Areas that need addressing are wills, health care preferences, long-term care preferences and substituted decision-making.
Health care at the end of life
Typically, we expect heroic medical procedures for those who have a long and productive life ahead of them. The specter of incapacity may change this calculus for many. How aggressive should medical treatments be? Are there treatments that should be avoided?
What about a durable power of attorney for health care decisions? Who should be the power holder? The power will need to comply with the Health Insurance Portability and Accountability Act of 1996 (HIPAA).
An advance medical directive (sometimes called a living will) is also advisable for setting out expectations for medical treatment. What artificial means of extending life should be used? What should be avoided? These issues need to be discussed with family members to minimize future misunderstandings and conflicts. (See “The critical issue for living wills” on page 2 for more on this planning aspect.)
Long-term care
A diagnosis of impending incapacity makes the need for planning for long-term care more urgent. The first step is to determine how long one may be able to stay in the home. Does the design of the house present obstacles to remaining there? Can they be fixed?
Who will provide the long-term care? Most such care is provided without charge by family members, such as a spouse or adult children. However, as dementia sets in, professional help may be required.
Will income be sufficient to cover the costs of a nursing home? Is long-term care insurance part of this picture? The analysis can be daunting. If the income will not be sufficient, a plan may be needed for the orderly liquidation of assets to cover those costs.
Estate planning
Usually, estate planning involves a substantial amount of guesswork and ambiguity. How far into the future will it be before the plan is needed? What family circumstances might change in the interim? What will the assets be? What will the tax laws be like?
Many of these uncertainties may be swept away when one is on the verge of incapacity, because this could be the final review of testamentary documents—the last chance to amend them to implement one’s intent. Beneficiaries need to be reviewed.
A statement of intent in the will or trust is advisable, to aid in the understanding of that intent.
For example, “health, education, maintenance and support” is a routine standard for distributions to beneficiaries. What does that phrase actually mean? Does it take into account other assets that the beneficiary may have?
This is also a good time to determine if any of the probable beneficiaries has a disability. If so, care needs to be taken so that their inheritance does not compromise their access to government benefits.
Revocable living trusts
A revocable living trust is a superior tool for asset management in case of incapacity, because a trustee will typically have an easier time dealing with brokers and banks than would an attorney-in-fact. The trust document also needs to be reviewed carefully if an onset of incapacity is expected.
For example, does one want to empower the trustee to make distributions to heirs before death? Or is the trust to be for the sole benefit of oneself and perhaps one’s spouse? The trust needs to be crystal clear on this point.
If individuals will serve as trustee instead of a corporate trustee, when should they be removed for incapacity? What standard should be used? Should the opinion of a physician be required?
Consideration should be given to granting someone the power to amend the trust after incapacity sets in. This might be the trustee, a trust protector, or the attorney-in-fact. If more than one person is granted the power, there should be a hierarchy of priority and a process for resolving conflicts.
Substituted decision-making
Who will make decisions when one loses the capacity to do so? For asset management, the trustee of a living trust may handle those duties. For legal, medical and personal issues, the durable power of attorney will be used. In general, a family member will be given this responsibility.
Should the power of attorney include the power to make gifts? If so, how broad should the power to make gifts be? Should the class of recipients be limited or unlimited?
One reason for having a living trust and/or a durable power of attorney is to avoid the need to have a guardian or conservator appointed. However, it sometimes develops that as capacity declines, a person makes harmful decisions, placing himself or herself in danger, and may need to have the ability to make such decisions legally removed. Consider including language in the durable power of attorney nominating the attorney-in-fact to be named as guardian, simplifying the process.
These are difficult decisions, but they must be faced.
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