Disability can affect anyone—young or old—and can come on suddenly, such as in the case of an unexpected accident or debilitating health condition. Putting the right estate planning tools in place can ensure that an individual's wishes are respected and their assets are properly managed if they become incapacitated. This article will discuss the key estate planning documents that should be in place when planning for disability. It will also address the circumstances in which court intervention may be necessary if an individual lacks capacity and does not have the proper estate planning documents.

Estate planning tools for reduced capacity

Some estate planning documents are specifically designed to take effect when someone becomes incapacitated. These documents allow an agent to step in to manage the individual's affairs in accordance with the estate planning document and the individual's wishes. They include:

1. POWERS: A durable power of attorney allows an individual to appoint an agent, also called an attorney-in-fact, to manage their financial affairs if they become incapacitated. The attorney may actually be legally authorized to handle tasks such as paying bills, managing investments and real estate, handling lawsuits, and administering benefits. When planning for incapacity, a key consideration is choosing a trusted attorney who understands the principal's preferences and values. If an individual becomes incapacitated and does not have a power of attorney, the court may need to appoint a guardian to manage the individual's affairs.

2. Health care directives and living wills: A health care directive or medical power of attorney appoints someone to make medical decisions on behalf of the individual if he is incapacitated and unable to do so. A health care directive or a special document called a living will describes an individual's preferences for medical treatment in situations where he cannot communicate his wishes. This may relate to life-sustaining treatment and end-of-life care. If an individual becomes incapacitated and does not have a health care directive or living will, the court may need to appoint a guardian of the individual's person to make medical decisions on their behalf.

3. Revocable Living Trusts: A revocable living trust allows an individual to place their assets in a trust, managed by a trustee. The individual can appoint a successor trustee to take over in the event of incapacity or death. Creating a revocable living trust can help avoid probate and ensure a seamless transition of asset management from the individual to their chosen successor trustee.

Other important considerations and key questions for customers

When planning for potential disability, estate planners should ask their clients some critical questions:

• Do you have a current and comprehensive list of your assets and liabilities?
• Do you have a plan for potential long-term care costs?
• Who do you want to make financial decisions for you in case of incapacity?
• What are your preferences regarding life-sustaining treatments and end-of-life care?
• Who do you want to make health care decisions for you in case of disability?
• Have you discussed your wishes regarding your financial and medical care with your agents of choice?

These questions help ensure that clients have considered all aspects of their future needs and have selected suitable individuals to act on their behalf.

Court Action for Individuals with Lack of Capacity

If someone does not have the above means and becomes incapacitated, it may be necessary to seek court intervention through a guardianship and conservatorship proceeding to ensure the appointment of someone who can manage the individual's financial and medical affairs.

Generally, custody is the legal process of determining a person's capacity to act FINANCIAL decisions and guardianship is the legal process of determining a person's capacity to make decisions about personal issues, such as living arrangements and health care. A person usually becomes the subject of a guardianship and/or conservatorship after a hearing and a finding by a court that (1) the person is incapable of making effective financial and/or personal decisions and (2) a guardianship and/or or the caregiver is necessary to meet the needs of the individual.

To obtain the appointment of a guardian or guardian for someone who is incapacitated, a person interested in the welfare of an individual, such as a family member, must file a petition with the court. The petition must contain supporting evidence of the disability, such as a letter from a treating physician. Notice of the petition seeking the appointment of a guardian and/or conservator must be given to the person for whom the guardianship and/or conservatorship is sought. Additionally, the person for whom guardianship and/or guardianship is sought generally has an absolute right to be present at the hearing.

If the issue is indisputablemeaning that neither the individual for whom guardianship and/or guardianship is sought nor any other interested party objects, a guardianship and/or guardianship can often be appointed after a fairly straightforward hearing during which a judge will review the claim and supporting evidence.

If the issue is contesting, however, can often devolve into full-blown and costly litigation. A case may be contested by the individual for whom guardianship and/or guardianship is sought or by any interested person, such as a family member. In contested cases, disputes may arise as to whether an individual is truly incapacitated, who should be appointed as guardian and/or conservator, or the extent of the powers of the guardian or conservator, if appointed. Because of the circumstances that give rise to most guardianship and/or guardianship proceedings, cases can often be complex and emotionally charged. Contested matters may include additional medical evaluations of the individual for whom custody and/or conservatorship is sought, discovery, mediation, and trial.

CONCLUSION

Estate planning is vital to ensure that an individual's wishes are respected and their affairs are managed effectively in the event of their diminished capacity or incapacity. Using tools such as powers of attorney, health care directives, living wills and trusts can provide peace of mind and avoid the need for court intervention. However, when proper planning is not in place, court action may become necessary to protect the individual's interests. By asking the right questions and considering all possible scenarios, advisors can help clients create comprehensive plans that address their future needs and provide clear directives for managing their affairs.

Beth Morrison is a consultant, and Amy Erickson is an associate, both at Lathrop GPM.