No matter how diligently responsible you are with your finances throughout your life, no one can predict the future. At some point in life, you may unfortunately experience a loss of capacity, making it impossible for you to manage your finances and investments in a way that aligns with your best interests, potentially exposing you to significant financial decline and risks of fraud.
This could be a devastating blow for both you and your family. Therefore, it’s advisable to take proactive measures starting from now to ensure that in the event you lose capacity, your financial and asset arrangements will still be properly taken care of. Let’s delve deeper into this issue.
A durable power of attorney allows a trusted individual to manage your financial affairs legally on your behalf should you lose capacity. This person, known as your agent, can handle tasks like managing bank and investment accounts, paying bills, selling assets, and overseeing retirement accounts.
In today’s ever-expanding digital world, it is essential to ensure that your agent can easily access account passwords, PIN numbers, security question answers, and other account access methods. Consider utilizing password management applications. Additionally, ensure that your agent can readily obtain hard copies of documents such as financial statements, property deeds, and titles, whether they are electronic or physical documents, proper storage is crucial.
Setting up a durable power of attorney is not a complicated process. You need to fill out relevant forms that comply with state requirements, sign the documents while you are of sound mind and have full capacity, and ensure trustworthy witnesses are present.
Failure to properly plan for the distribution of your assets after incapacitation may subject your loved ones to a lengthy and expensive probate legal process if arrangements are not made in advance.
By establishing a revocable living trust, you can bypass probate and ensure that assets are transferred directly to designated beneficiaries according to your wishes. You can include a variety of assets in the trust, such as bank accounts, investment accounts, real estate, vehicles, and jewelry. As the grantor of the trust, you can appoint yourself as the trustee to manage the trust assets while competent. Also, you can designate a trusted successor trustee to take over trust management in the event of your incapacity.
However, it is crucial to include clear terms in the trust document to define the circumstances that constitute “incapacity” and provide specific guidance on care arrangements for the grantor.
Equally important is to ensure assets are properly funded into the trust; otherwise, it remains an empty vessel. For financial accounts involved, designate the trust as the beneficiary. Additionally, ensure that ownership or title of relevant assets is correctly transferred to the name of the trust.
Furthermore, a living trust serves as a highly effective estate planning tool. As the legal owner of the assets it holds, the trust enables these assets to no longer be part of your personal estate, aiding high-net-worth families in minimizing or avoiding estate tax burdens effectively.
Although a trust is an effective tool to ensure proper asset distribution after your passing, it’s still advisable to draft a will. Most importantly, a will allows you to legally appoint guardians to care for your minor children in the event of incapacity or death for both you and your spouse.
So far, we have discussed prudent steps to arrange your finances in case of incapacitation. However, ensuring your health receives proper care when you are unable to make decisions is even more crucial.
Therefore, designating a trustworthy individual as your healthcare proxy is immensely important. This empowers the proxy to make medical decisions on your behalf legally. They will collaborate with doctors and other healthcare providers to ensure you receive appropriate care and treatment.
You can designate a healthcare proxy through another advance directive called durable power of attorney for health care. This document should clearly outline how you wish to receive care and delineate the authority of the healthcare proxy. Your doctor and healthcare providers should have copies of these documents and related information on file.
No matter how cautious we are, accidents can still happen. You may experience mental or cognitive impairments that render you incapable of making financial and medical decisions. However, you can take steps now to be prepared for such situations. Establishing durable powers of attorney for finances and healthcare allows someone to manage critical affairs on your behalf in the event of your incapacitation. Creating trusts and wills ensures assets are distributed according to plan to suitable beneficiaries. Timing is critical for these actions. For instance, to establish a trust or power of attorney, you must be of sound mind. Therefore, although this may not be a topic we wish to dwell on extensively, proactive preparation is always wise.