As we are living longer due to advances in medicine and changes in lifestyle, more of us will become disabled for some time before we die. Unfortunately, most of us are not planning for an event that is more likely to be a probability than a possibility—and the consequences of not planning can be disastrous for all involved. When someone owns assets in his/her name and becomes unable to manage financial affairs due to mental or physical incapacity, only a court appointee, such as a “conservator”, can sign for the disabled person. Conservatorship can be costly, time consuming and cumbersome with annual accountings, bonds, reports, ongoing determinations of incapacity/incompetency, and fees for attorneys, accountants, doctors and guardians. It usually lasts until the person recovers or dies which, depending on his/her age when the disability begins, can be years.
A fully funded revocable living trust can avoid a conservatorship. When a person creates a living trust the individual becomes the trustee and holds their property indirectly through the trust. If the person becomes incapacitated, a court-appointed conservatorship is not needed as the incapacitated person no longer holds the property directly. Without any court interference, the disabled person’s handpicked successor trustee can automatically step in and manage the disabled person’s financial affairs—selling or refinancing assets to help pay for his/her care and the care of loved ones, or keeping the owner’s business going—for as long as needed.
Other planning documents include:
* Durable Power of Attorney, which allows the successor trustee to transfer to the trust assets that may have been overlooked, and to manage assets (like IRAs) that cannot be put into a living trust;
* Durable Power of Attorney for Heath Care, which gives another person legal authority to make health care decisions (including life and death decisions) if you are unable to make them for yourself.
* HIPPA Affidavits, which give written consent for doctors to discuss your medical situation with others, including family members, loved ones and your successor trustee(s).
Some other strategies may also include disability income insurance (to help replace lost income), and long term care insurance (to help cover the costs of care that are not covered by medical insurance). Business owners may want to consider business or professional overhead insurance that will pay monthly operating expenses until they recover or the business can be sold or transferred, and buy-sell agreements in the event a co-owner becomes permanently disabled.
Disability before death is not always expected and it does not always happen, but it can be adequately planned for as part of your estate planning.