There are many factors to consider when creating an estate plan. One is mental incapacity. What might happen to you, your family, your financial assets, your business, and your overall estate should you have an accident or develop a mental incapacity and become incapable of making important life decisions? Whether the mental incapacity is temporary or permanent, you should have a plan in place, to protect yourselves, your finances, and your family’s futures.
What is Mental Incapacity?
There is no bright line test for mental incapacity, but it does involve a loss of ability and control. The question of incapacity is also affected by the activity in which you are engaged. Contractual incapacity is not the same as testamentary incapacity, nor is it the same as decisional capacity. But, all these decisions needs must be considered, and anticipated in your planning.
There is often no specific point at which you cross from competent to incompetent. Instead, unless caused by a sudden accident or medical event, typically a person’s mental capacity will degrade slowly. Therefore, relative issues to consider include:
- When am I considered “mentally incapacitated?”
- Who decides if I am disabled (the court, a family member, a business partner, etc.)?
- Who takes over control of my person and property?
- What are that person’s powers over my person and property, and what should be his or her priorities when decision making?
Appointment of a Guardian
When developing your estate plan to include mental incapacity planning, there are specific issues you will want to cover. One is the appointment of an agent to manage your property and make financial decisions, and an agent to make medical decisions. Reliance on the Court’s appointment of a guardian of the person and property will cause a public process, is expensive (given attorney fees, accounting fees, court costs, required bond premiums, and more), and time consuming. It takes time to bring a petition, to have one or more Court hearings, to prepare required accountings, and then for the guardian to be appointed and qualified. There are also significant and substantial record-keeping requirements and court reporting requirements, and the necessity to seek court approval for most significant items.
General Durable Power of Appointment
The appointment of a guardian can be made unnecessary by your making a general durable power of appointment. However, in most circumstances, this essentially entails giving someone a blank check and full control over your estate. It is generally effective immediately (even if you are not disabled), there is typically no opportunity to provide instructions, and there are no reporting requirements.
Formation of a Trust
Yet another option is to draft a bare bones trust. However, a basic trust will likely only contain a standard definition for disability, and will likely contain no personal instructions. Further, if not funded, it may need to rely upon a general durable power of appointment, as a trustee can only control those assets owned by the trust.
The Benefits of Estate Planning
This is why estate planning is so important, because it can help you make these tough decisions. Each person’s situation is unique, and thus each estate plan should be custom-designed for the individual, based on their family needs, financial assets, business holdings, and other important factors effecting the plan. An effective estate plan can overcome challenges if founded in a three-part approach:
- Developing your estate plan with counseling-oriented planning partners.
- Committing yourself and your family to a formal continuing maintenance and education program.
- Securing appropriate assistance for you and your family, to transfer your wisdom along with the rest of your wealth.
An estate plan founded on these core principals will personalize your definition of disability—whether physical or mental. It will detail how a disability is determined, and provide for the transfer of authority to a personally selected disability trustee. It will also detail personalized disability instructions, so you can have more control over what happens to you and your assets if a mental incapacity should occur.
For help with your estate plan and to learn more about my three-part approach to effective life planning, contact me today.
