Creating an estate plan is an admission of your mortality. The admission that you will die is difficult, but “common to man”. However, what happens if you don’t die? That is, you could become incapacitated before you die.
Incapacity planning is an essential but often overlooked part of estate planning. The occurrence of a cognitive incapacity will test the viability of your estate planning. None of us are likely to admit that we are incapacitated so long as we can still express ourselves in some fashion. The problem is that, though you may be able to express yourself, you may not have a firm grasp on reality or a realistic appreciation of your true capacity. Absent affirmatively providing for your future incapacity, the likely result is that a public (and often humiliating) guardianship hearing will need to be conducted resulting in the appointment of a court supervised guardian of both the person and the property of the “alleged disabled”.
If you have done basic estate planning then you likely have a Will and a power of attorney. The Will is of no use in dealing with incapacity since it has no effect until someone has died. A power of attorney to provide for an agent to handle administering your property and assets, but it is interpreted under the laws of agency and is not as vital under the law as a revocable trust.
Placing your property in a living trust can accomplish many estate planning objectives, including planning for incapacity. A living trust extends an ownership umbrella over your assets. If you become incapacitated then your named successor trustee can take over for you and administer your assets to your benefit, being interpreted under the law of ownership rather than agency. There will be no need for the appointment of a “guardian of the property” since your attorney-in-fact under your power of attorney and your living trust successor trustee will handle those responsibilities. (The role of “guardian of the person” is mostly assigned to a document known as an Advanced Healthcare Declaration)
Where a guardianship proceeding is public and can be humiliating because of the public determination that you are not able to manage your affairs, the determination of who will be your successor trustee and the circumstances upon which they will succeed you is entirely private and the terms of which are decided by you in advance. Naming the members of a disability panel in your trust allows you to exert control over your incapacity plan by choosing a group of people you trust to determine if you are incapacitated. You will specify who constitutes the disability panel, whether their determination of your incapacity is under a unanimous or majority vote, and their determination that allows for a very graceful private passing of the control of your trust to your named successor.
Reasons to Name a Disability Panel
A physician or court, while ostensibly qualified to weigh in on disability, may not be best suited to the task. The Settlor (you) may prefer to name a disability panel because
- it can include the people who know the Settlor best and can recognize when something is wrong,
- they may feel more secure with a mix of people—such as medical professionals and trusted family members—making the determination,
- it eliminates the need to pay an attorney to go to court to have the Settlor declared incompetent, and
- it circumvents red tape and avoids delays that can affect estate planning considerations.
Creating an estate plan is all about taking control of the future. Naming a disability panel gives the Settlor control over not only what happens upon their death, but also what happens if they suffer from an incapacitating disability. By providing for a disability panel in their trust, they will not have to rely solely on a court or a doctor to make such a personal decision.
Getting the Details Right in Your Estate Plan
Advanced healthcare directives and powers of attorney supplement your living trust and can provide direction if you become incapacitated, but if you do not have a disability panel as part of your trust, you are overlooking an important aspect of incapacity planning.
The people on—and the rules of—your disability panel are completely up to you. Setting these parameters while you are still competent and in control is one more way that you can make your wishes known.
It is important to discuss the creation of a disability panel with an attorney who can help you with practical considerations, such as having a medical professional on the board to assure stronger cooperation from financial institutions. Remember that you can always change the terms of your revocable living trust, including the disability panel. For help drafting or updating your estate plan, please reach out to schedule a meeting.