Creating Your Incapacity Plan: Part 1

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Geoff Hoatson

Attorney / Principal

Estate planning is not only about having a plan in place to deal with what happens at your death, it is also about having a plan in place to deal with what happens if you become mentally incapacitated.

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

Mental incapacity caused by an accident, injury, or illness means you will be incapable of making informed decisions about your finances.  Without a comprehensive incapacity plan in place, a judge can appoint someone to take control of your assets and make all personal decisions for you through a court-supervised guardianship or conservatorship.  You and your loved ones could lose valuable time, money, and control until you either regain capacity or die.

Planning Tip:  You may believe you are protected if you become mentally 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 access 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 the misdeeds of your joint owners.

The Essential Documents for Financial Management During Incapacity

There are two essential legal documents for managing finances that must be in place prior to becoming incapacitated:

1.      Power of Attorney:  This legal document gives your agent the authority to pay bills, make financial decisions, manage investments, file tax returns and other financial matters that are described in the document. Powers of Attorney come in two forms:  “Durable” and “Springing.”  A Durable Power of Attorney goes into effect as soon as it is signed, while a Springing Power of Attorney only goes into effect after you have been determined to be mentally incapacitated.

2.      Revocable Living Trust:  This legal document has three parties to it:  The person who creates the trust (the “Trustmaker” or “Grantor” or “Settlor” – they all mean the same thing); the person who manages the assets transferred into the trust (the “Trustee”); and the person who benefits from the assets transferred into the trust (the “Beneficiary”).  In the typical revocable living trust situation you will be the Trustmaker, the Trustee, and the Beneficiary of your own trust.  However, if you become incapacitated, then your Successor Trustee will step in and manage the trust assets for your benefit.

Planning Tip:  To be part of an effective incapacity plan, your Revocable Living Trust should contain provisions to determine your mental status through a private process (i.e., a disability panel, an attending physician, the opinion of two physicians, or some other method) instead of a public court process.  In addition, the trust agreement should contain specific instructions about how to take care of you if you are declared mentally incapacitated.

How to Choose the Right Financial Agent for Your Plan

 It is absolutely crucial to make sure you are naming the right financial agent for your incapacity plan. Unfortunately, there are often too many cases where an individual is incapacitated and instead of protecting their best interest, the financial agent takes advantage of the situation and makes decisions that may benefit them. Circumstances like the one mentioned above can ENTIRELY be avoided if a trustworthy and reliable financial agent is named.

Factors you should consider when deciding who to name as your financial agent:


Our staff is dedicated to making sure individuals and their families are taken care of even in the toughest of circumstances. For more information on creating your incapacity plan, contact our office at 407-574-8125. As always, we are here protecting you, your family and your future.

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