When you start to look into the subject of estate planning, you will probably hear about some things that you did not take into consideration. The execution of a will or a trust is something that most people would anticipate, but you should also address end-of-life issues when you devise your estate plan.
To account for the possibility of incapacity, you could use a certain type of power of attorney called a durable power of attorney. A power of attorney that is not durable would no longer be in effect if you were to become incapacitated, and this is why the durable designation is significant.
If you create a durable financial power of attorney, you name an agent or attorney-in-fact. This individual would be able to manage your financial affairs if you ever become unable to handle them on your own.
It can be disconcerting to give someone the power to act on your behalf before you become incapacitated. To account for this, you could potentially choose not to tell the agent that you have executed a durable power of attorney until you feel as though you are in need of representation.
In some jurisdictions, it is possible to create a springing durable power of attorney. This device would only become effective if you were to become incapacitated.
Health care decision-making can also enter the picture toward the end of your life. To account for this, you could add a durable power of attorney for health care. This document is called a health care proxy in some areas.
Power of Attorney Limitations
A durable power of attorney can be a useful document, but there are some limitations to take into consideration. Many people assume that the financial agent that is named in a power of attorney would still have that power after the death of the principal. In fact, this is not the case. Any power of attorney would terminate upon the death of the grantor of the device.
Plus, you have to consider all the implications when you execute a durable power of attorney. Many elders require nursing home care late in their lives. For example, let’s say that you contract Alzheimer’s disease. The disease strikes around 45 percent of people who are at least 85, so this is something that impacts many families.
A significant percentage of Alzheimer’s sufferers ultimately reside in nursing homes. These facilities are very expensive, and Medicare does not pay for nursing home care. It can cost hundreds of thousands of dollars to spend multiple years in a nursing home.
The solution for many people is Medicaid, because this government health insurance program does pay for nursing home care. Since it is a need-based program, you cannot qualify if you have more than $2000 in countable assets.
To qualify for Medicaid, people often give away assets to their loved ones. If you grant someone a durable power of attorney, the agent would not automatically have the ability to give gifts on your behalf so that you could qualify for Medicaid to pay for long-term care if you ever need it. The document has to be specifically worded to allow for this type of gifting, and this is a very significant aspect to take into consideration.
We should point out the fact that a revocable living trust can be useful if autonomy is important to you. If you establish this type of trust, you can act as the trustee while you are alive and well. In the trust declaration, you name a successor trustee to handle the trust administration duties after you are gone.
You could also empower a successor trustee to administer the trust in the event of your incapacitation. If you go this route, the trustee would handle the assets in the trust while you are living with limitations, and the trustee would also be able to administer the trust after your passing.
Even if you have a living trust with a successor trustee who is empowered to manage the trust if you ever become incapacitated, you would still want to have a durable power of attorney. This is because of the fact that you may have property in your possession that you never conveyed into the living trust. The agent that you name in the power of attorney would be able to handle this property.
Learn More About Incapacity Planning
If you would like to obtain more detailed information about incapacity planning, download our in-depth special report. This report is free, and you can obtain access to your copy through the following page: Free Report on Incapacity Planning.