What Happens if You Become Incapacitated?

If you had a stroke or an accident that left you mentally or physically incapacitated you would need someone to manage your affairs. Sooner or later, your signature would be needed to manage a bank account, pay a bill or handle your property. Being that you are unable to do so a court would have to get involved if you had not planned ahead.

Typically a guardian (also called a conservator) is appointed when a court decides that you cannot make a decision, or if you have an illness such as Alzheimer’s disease. In this case you are physically or mentally incapable of managing your affairs.

Many people are surprised to find out that a simple will does not keep the court from intervening into their affairs if they become incapacitated. Without planning for incapacity, you could find yourself and be putting your family into a difficult situation.

Guardianship (or conservatorship) is the process where the court gets involved in the management of the estate in the case where you are incapacitated. The reason why the court would step is is to prevent someone from taking control of your assets and misusing them. The court would make financial decisions for you and look after your welfare. Otherwise they may name a conservator to manage your estate. The court could name your spouse, a child, a family member or an outside institution. It is their decision, not yours.

When the court gets involved your records and proceedings are open to the public. The court costs, legal bills, fees and bonds can also take away from the value of your estate. Not to mention the conservator is required to report to the court. This is why we encourage everyone to plan ahead.

One option that many use is durable power of attorney. A durable power of attorney is an arrangement whereby one person authorizes another to take action on the first person¼s behalf as his or her agent. This agent has the authority to conduct business for you.

A durable power of attorney has a few downsides if used alone. Unfortunately, many banks and financial institutions have come up with their own forms of power of attorney and will not act on the basis of other powers of attorneys or will do so only after persuasion. As a result sometimes institutional forms are needed in addition to a durable power of attorney.

Another downside is the easy access a durable power of attorney will have. This could open up the risk to giving someone access to your funds without accountability. Many stories have been reported of people recovering an illness only to find nothing left in their name.

With a “Fully Funded Living Trust” you can decide in advance and appoint the person who would manage your assets if you should become incapacitated. A distinct advantage a funded Revocable Living Trust has over just a durable power of attorney is that the trustee(s) has the legal right to manage the assets. This makes communication with banks and financial institutions a lot easier. Third parties such as banks are many times more comfortable dealing with a trustee than they are dealing with just a durable power of attorney.

When you prepare a Living Trust a power of attorney is still a good idea. Generally a financial durable power of attorney is used for assets not in the trust name such as IRA’s and a health care power of attorney gives someone else the authority to make health care decisions for you in the event you are unable to make them for yourself.

Here are more details on the powers of attorney.

Financial Durable Power of Attorney

If you are incapacitated, this document gives another person full legal authority to sign your name on your behalf and manage your finances for all assets not owned by your trust. Your Revocable Living Trust gives your Successor Trustee or surviving spouse Financial Powers of Attorney of assets owned by the Trust. For tax reasons you should own certain assets outside your Revocable Living Trust; e.g., IRA’s, annuities, pension plans. Since they are not owned by your trust, your successor trustee has no authority to deal with them. The Financial Durable Power of Attorney names an Attorney-in-Fact to make decisions regarding such assets.

Health Care Durable Power of Attorney

The Health Care Durable Power of Attorney applies in all situations in which you are unable to make health care decisions for yourself, not just when you are terminally ill. The Health Care Durable Power of Attorney you created only becomes effective upon your incapacity. It gives broad powers of health care decisions to whomever you have named as your Attorney-in-fact. In addition, unless you direct otherwise, this document gives your Attorney-in-fact the power after you die to

1. authorize an autopsy;
2. donate your body or parts thereof for transplant or therapeutic or educational or scientific purposes; and
3. direct the disposition of your remains.

No one has the legal authority to act for a family member if that individual is unconscious or incompetent unless they have Power of Attorney to do so. Even parents of adult children cannot authorize emergency treatment for them without a Power of Attorney. If no one has been appointed as your Attorney-in-Fact, it is up to the courts to make decisions on your behalf.