Preparing for the Unexpected: A Guide to Including Incapacity Planning in Your Estate Plan

Roy Gagaza

November 9, 2023

Tax Planning for Millennials: Securing -Preparing for the Unexpected: A Guide to Including Incapacity Planning in Your Estate PlanYour Financial Future

Estate planning is not just about deciding what happens to your assets after you die—it’s also about making arrangements for your care and your finances if you become incapacitated. Planning for incapacity is a critical component of a comprehensive estate plan. Here’s a step-by-step guide to ensuring your wishes are honored if you cannot make decisions for yourself.

Understanding Incapacity

Incapacity can happen suddenly, due to an accident or illness, or gradually with age. It means that a person can no longer make informed decisions about their personal care or finances. Recognizing that incapacity can happen to anyone at any time is the first step in planning for it.

Legal Documents for Health Care Decisions

Advance Health Care Directive: This document allows you to appoint a health care proxy—a trusted individual to make medical decisions on your behalf if you cannot. It also lets you outline your preferences for medical treatment and end-of-life care.

HIPAA Authorization: A HIPAA authorization form permits designated individuals to access your medical records, which is crucial for making informed healthcare decisions.

Living Will: This details your wishes regarding life-prolonging medical treatments. It’s often included as part of an advanced health care directive.

Managing Finances During Incapacity

Durable Power of Attorney: This legal instrument authorizes someone you trust to handle your finances if you become incapacitated. Unlike a regular power of attorney, it remains in effect after you can no longer make decisions.

Revocable Living Trust: You can create a trust and transfer your assets. You’ll manage the trust as trustee until you cannot, at which point your chosen successor trustee will take over.

Communication with Loved Ones

Discuss Your Wishes: Conversations with the people you’ve named in your documents are essential. Ensure they understand your preferences and are willing to carry them out.

Leave a Letter of Instruction: While not legally binding, this can provide additional guidance and explanations about your wishes to your loved ones and fiduciaries.

Review and Update Your Plan Regularly

Life changes, and so might your estate plan. Review it regularly, especially after significant life events like marriage, divorce, the birth of a child, or a substantial change in your health.

Seek Professional Advice

Consult an estate planning attorney to ensure your documents are correctly drafted and reflect your state’s laws. A financial advisor can also offer guidance on managing your assets for your potential incapacity.

By preparing for the possibility of incapacity, you can have peace of mind knowing that your wishes will be respected and that someone you trust will manage your affairs if you cannot do so yourself.