Disability planning is essential for everyone. There are several techniques that range from relatively simple to complex, depending on the types of assets and protection required by the client. Each of the techniques will work to some degree, but also have some inherent shortcomings in certain situations. It is best to consult your attorney before implementing any of the following techniques.
First, lets identify what happens when no planning has been done and a person becomes incapacitated. Focusing just on the financial aspect, the incapacitated person will need a conservator appointed for them. The conservator is a fiduciary required to act in the incapacitated person’s best interest. The conservator may be required to report to the court on a periodic basis regarding the assets of the incapacitated person if there is any doubt as to the conservator’s intentions and legitimacy of his or her actions. The conservatorship can be costly and time consuming to set up. A conservatorship is also not ideal for emergency situations where quick actions are necessary.
A common situation is the incapacity of one spouse – leaving the other spouse to care for him or her. The easiest and most cost-effective way to prepare for this situation is the retitling of property into joint tenancy. Obviously, this will only work for property that can be titled jointly such as real property, bank accounts and vehicles, but it does work in a pinch and can be a saving grace when no other planning has been completed.
Another planning technique is to execute a Financial Durable Power of Attorney (or Financial POA) naming an agent to act on the incapacitated person’s behalf. The Financial Durable Power of Attorney is limited to financial matters so that a different person can be nominated as the incapacitated person’s Medical Power of Attorney to make medical decisions. Some clients prefer to have one person making financial decisions and another making medical decisions. The Financial Durable Power of Attorney is durable because it remains in effect even after the person executing the document has become incapacitated. Not to long ago, Colorado and other states had laws that nullified a person’s Financial Power of Attorney as soon as that person became incapacitated – completely defeating the purpose of the document. An estate planning lawyer can draft a Financial Durable Power of Attorney and should include this document in any estate plan drafted. If requested by itself, the document is fairly straightforward and should not cost very much to have drafted.
The most complicated disability plan will include a trust of some sort. Typically, revocable living trusts will be utilized because they allow the person who created the trust (the “Settlor”) to retain control of the assets during the Settlor’s lifetime. Property can go in and out of the trust at the Settlor’s discretion. However, once the Settlor becomes incapacitated, all of the property in the trust then comes under the control of the successor trustee of the trust. The trustee must follow the terms of the trust as written by the Settlor, but otherwise has the authority to care for all of the trust assets. A trust is a legal document that can be enforced and must be followed by the trustee. The terms of the trust can, and typically do, identify exactly how the property inside the trust is to be administered for the benefit of the Settlor and/or any other beneficiary of the trust. Each of the above options have their own advantages and disadvantages from cost to levels of protection. As with many things in life there is no one best answer, and client’s typically find that a combination of disability planning tools is necessary to meet their needs and adequately cover as many contingencies as possible.
Patrick Curnalia is an estate and tax planning attorney with Curnalia Law, LLC. Patrick has worked with many clients to help them achieve their planning goals. Our firm services the entire Denver area and is located near the Denver Tech Center. Find out more about how our firm can help you by visiting our website at www.curnalialaw.com.