In Estate Planning, you will hear references to “incapacity planning” or “disability planning.” They are essentially the same thing and involve advance planning for your mental incapacity—which is your inability to properly manage or handle your financial affairs. While death and taxes may be certainties, planning for both disability and death should have a higher priority than planning for death alone.
Lifetime or Living Probate
A wise person will live in the now and plan for the future. Unfortunately, sometimes the future involves a mental disability, which may strike without much warning. A guardian and conservator court proceeding is sometimes called “Lifetime Probate” because they are handled by the same court in which probate cases are filed. There may be many reasons for the court appointment of a conservator or guardian. Mental incapacity is a big reason, whether caused by accident, stroke or dementia.
Guardian or Conservatorship
In Colorado each adult is free to manage his or her own financial affairs unless a court determines he or she is not competent to do so. A Guardian or Conservator case is a relatively expensive court action brought against someone to take away his or her freedom to manage financial affairs. If the proposed Ward does not have a lawyer to represent him or her and needs one, the judge can appoint a lawyer. That lawyer will be paid out of the proposed Ward’s assets. A Revocable Living Trust contains advance planning to avoid Guardian and Conservator proceedings in nearly all cases.
Powers of Attorney
Virtually all lawyers will prepare a “Durable General Power of Attorney” for you to sign when you create a Will or a trust. They do this in part so you will have named someone to manage your money if you become mentally incapacitated. A will ensures that a death “probate” proceeding will occur when “probate assets” are involved. A trust, in nearly all cases if it is funded properly, will avoid probate court action.
The intent of the DGPA is to attempt to preserve your privacy and avoid the expenses and delays that would occur as a results of a conservator or guardian proceeding. However, the lawyers don’t guarantee that DGPA will always work.
Naming Your Spouse or Child as the Agent Under Your DGPA
A DGPA can either be extremely powerful or incredibly weak. The DGPA for property is a powerful instrument because with it your agent has almost unlimited power to use or abuse the trust you have placed in him or her. On the other hand, It is occasionally refused or not accepted. This is why the DGPA for property can be the weakest of instruments because sometimes it doesn’t work at all.
Now that many banks are typically part of a large national holding company, the general form of DGPA for property doesn’t have to be accepted. Many banks will not accept a DGPA for property given to a spouse more than 1 year ago. Many national financial brokers will not accept DGPA for property that is not on their own current form.
Potential Problems with DGPAs
- It is like a blank check, so you really have to trust the person you name as agent.
- It appoints another person to handle all of your assets and property, without limitation, so it can easily be abused.
- It contains no instructions about how to manage your assets and what to do with them.
- Your agent is not limited to the funds in your bank account.
- It diminishes your full control of your assets.
- It may not avoid the need for an expensive conservator and/or guardian court proceeding.
- It doesn’t work after your death.
- It doesn’t avoid the court proceedings on your death, called “probate.”
- It may not be accepted by some entities, such as banks, title companies, etc.
Revocable Living Trusts Are a Great Option
Statistics show that many people will become mentally disabled before they die. Do you have a plan in place if this were to happen to you? Having just a Durable General Power of Attorney may not be enough and may not work in all circumstances. Do you really want to take that chance? Alternatively, Conservator and Guardian court proceedings are not cheap, and they are an emotional drain for your family. Good disability planning is one of the three main reasons most people choose to have a Revocable Living Trust plan.
10 Benefits of Mental Incapacity Planning under a Revocable Living Trust
- Avoids expensive “Living Probate” court proceedings (conservator and guardian) if you become mentally incapacitated.
- Keeps the dignity of control of your financial affairs within your family.
- Allows for private and inexpensive management of your assets without court involvement.
- Provides binding advance instructions about how your assets and income can be used.
- Allows you to name the trustee or person who would manage your financial affairs.
- Allows the disability trustee to have full access to your funds to provide for your health and support because of the fully funded revocable living trust.
- Assures any property you left out of your Living Trust, or property that comes to you after your disability, can be placed into your revocable living trust for your benefit.
- Provides for your spouse or dependent children.
- Allows for gifts of your assets or income to be made or to continue to be made.
- Solves the problem of a General Durable Power of Attorney not always being accepted by third parties.