It’s Not Just Death and Taxes: Creating a Reliable Incapacity Plan

Estate planning is not just about having a plan in place to deal with what happens at your death. It’s about having a reliable plan in place to deal with what will happen if you become incapacitated—and knowing the potential consequences of not having a plan. What are the essential documents for managing your finances, should you become incapacitated? What about making health care decisions? And how do you choose the right person to manage these decisions for you?

Court-Supervised Guardianship or Conservatorship: How to Lose Time, Money and Control

Mental incapacity caused by an accident, injury, or illness means you will be incapable of making informed decisions about your finances and well-being. Without a comprehensive incapacity plan in place, a judge can appoint someone to take control of your assets and make all personal and medical decisions for you through a court-supervised guardianship or conservatorship. While not all incapacity situations are long-lasting or permanent (you may simply be in the hospital for a period of time and need temporary assistance),you and your family could lose valuable time, money, and control until you either regain capacity or die.

Guardianship vs. Conservatorship

Many people confuse these terms, or use them interchangeably. A Guardianship is put into place to watch out for the safety and well-being of a person—think activities of daily living—their physical comfort, their health, and how and where they live. A Conservatorship deals with one’s financial accounts and real property assets: managing income and paying bills, overseeing investments, management and care of business or rental property, etc.

You may believe you’re protected if you become incapacitated because you hold your assets in joint names with your spouse, a child, or another family member. While a joint account holder may be able to access your bank account to pay bills or your brokerage account to manage investments, a joint owner of real estate will not be able to mortgage or sell the property without the consent of all other owners. Aside from this, adding names to your accounts or real estate titles may be deemed a gift for gift tax purposes. In addition, if a joint owner is sued, your property could be seized as part of a judgment entered against them. Only a comprehensive incapacity plan will protect you and your assets from a court-supervised guardianship or conservatorship and any potential misdeeds of joint owners.

Updating Your Plan

Even with an incapacity plan in place, your life changes with the passage of time. Your incapacity plan will eventually become stale and outdated. It’s important to review your plan every few years, or after a major life event (such as a divorce or a death), to ensure that the plan will work as intended if it is ever needed.