Things to Consider When Planning for Incapacity Using a Trust

For most people, estate planning is all about distributing your assets and property after your death. But have you ever wondered about who will take care of all of this if you ever happen to fall seriously ill or meet with an accident or begin showing signs of deteriorating mental health and memory problems? It’s a scary prospect, one that is hard to think about, let alone plan for, but it is true. If you were left incapacitated for any reason, who would look after your assets and property? Who would sign on your behalf on business and bank documents? Most importantly, who would be responsible for your medical treatment when you are unable to make decisions for yourself? There is a way – incapacity planning. Incapacity planning is an important, but often ignored, part of comprehensive financial planning. It’s kind of like estate planning for when you are alive but unable to manage your finances and estate yourself. Let’s take a deeper dive into how to plan for incapacity.

Things to Consider When Planning for Incapacity

Incapacitation can hit anyone, anytime. Hence, it is prudent to be prepared in advance for any eventuality.

Assess Your Situation

The first step is to check both your financial status and physical health. Many diseases and disorders show no outward symptoms, but fester silently in your body. A thorough checkup not only helps bring any such dangers to light but also gives you time to make the necessary preparations for your loved ones. Appoint someone you trust – whether spouse, child or friend – as your healthcare proxy, i.e., a person with the legal right and power to make decisions regarding your medical treatment on your behalf in case of your incapacitation.

Gather Key Documents

Make sure all your important documents, including medical, legal, property, and financial documents, are properly organized and stored in a safe place. Share the location and nature of these documents with a select group of people whom you implicitly trust. In case of an emergency, one of these people should be able to gain access to these papers to help you.

How Can Power of Attorneys Help in Incapacity Planning

Once you’ve completed the checkup and organized all important documents, you can start planning for incapacitation – equipping a trustworthy person with a Power of Attorney (POA) to take care of matters if you are unable to.

Two POAs are the most important when it comes to incapacitation planning: one that designates someone the power to manage your financial and property transactions, and one that enables someone to make medical decisions on your behalf, i.e., the healthcare proxy mentioned above. The financial POA ensures all your bills are paid on time, any house-related issues are addressed, and your investments are paid attention to in the absence of your personal monitoring.

While the bottom line for all POAs is to ensure every other aspect of your life keeps functioning smoothly for you and your family, which type of POA is needed in your particular case is something only a professional estate planner can guide you with.

Is POA Enough?

A POA, though a great tool for incapacitation planning, is not without its loopholes. Some financial institutions may hesitate to honor old or vaguely drafted POAs. In such circumstances, managing your estate becomes a challenge for your family and friends and could even lead to financial losses.

So, another solution to this problem is revocable trust.

How Can a Revocable Trust Help in Incapacity Planning

Revocable trusts are a common tool in estate planning, and their structure works well for incapacity planning.

By creating a revocable living trust, you can transfer ownership of your bank accounts, brokerage accounts, real estate, and other financial assets in the name of the trust during your lifetime. The advantage of such an arrangement is that it allows you to keep complete control of these assets as a Trustee. You can lay down all terms and conditions of the trust and even amend or revoke them as and when you deem fit. In case of death or incapacitation, your chosen successor trustee takes over the management of the Trust and continues to run it as per the guidelines laid down by you.

So, why does a revocable living trust make sense as a solution to incapacity planning?

• Complete Control: The most important reason is that you retain complete control of your assets during your lifetime and after incapacitation or death.
• Choice of Successor Trustee: In the event of your incapacitation, your personally chosen successor Trustee takes up the reins of the trust and its assets. No court intervention is necessary here. Another advantage is that it helps prevent family conflicts over control of the estate or designations, as the Trust has to follow the conditions and guidelines laid down by you, which cannot be overridden even by your family.
• Continuity of Asset Management: With you incapacitated, your family is suddenly burdened with managing your assets, which can be a daunting task. By creating a revocable living trust, it becomes the Trust’s duty to ensure all bills are paid on time, investments are supervised, and your property is properly maintained without interruption or stress to your family.

It is important to note that even with a revocable living trust in place, you will still need the POAs for managing assets that are not under the Trust, such as retirement accounts, life insurance, and healthcare.

Communication is Crucial

Once you have zeroed in on whom you would like to entrust your estate and healthcare responsibilities to in the event of incapacitation, it’s time to talk to the family. Take the time to discuss the intricacies of the Trust or POAs with family members and POA designees, answer any queries they might have, and communicate your intentions and thoughts honestly and clearly to them. This is very important to avoid any kind of confusion or conflicts from arising in the future.

With regards to healthcare, relay your wishes to your family and healthcare proxy. This will help them make better decisions during what could turn out to be emotionally distressing times.

Consult Professionals for the Best Fit

While revocable trusts seem like the best solution for incapacity planning, they do come with certain tax implications of their own. These implications can be different for different people, depending on their financial situations and the scope of their estate. Without professional guidance, handling taxation issues can be tricky.

Hence, involving the assistance of an experienced professional estate planner and financial advisor is a good strategy. They can assess your financial situation and tell you which of the many tools – POAs or Trust or both – work best for your specific requirements and case.

Being incapacitated is never a choice. But planning well in advance for even the remotest possibility of such an occurrence is a wise decision. Your hard-earned money and assets deserve to be preserved for you and your loved ones, even when you all might be emotionally and practically unable to personally look after them. With proper incapacity planning under the guidance of a professional, you can rest assured that your health and wealth will be in good hands.

Contact Black and Gill LLP in West Toronto to Help You with Incapacity and Estate Planning

Talk to a professional estate planner to help you put in place the right structure to preserve your estate. At Black and Gill LLP, our accountants and estate planner can provide services such as creating and maintaining a Trust, Will, and POA. To learn more about how Black and Gill LLP can provide you with the best accounting and estate planning services, contact us online or call us at 416-477-7681.