Forgotten Estate Planning: Disability*

An often-overlooked part of estate planning is planning for mental disability.  Many of us have been in the uncomfortable position of having to take care of a relative or friend who can't handle his or her financial affairs anymore.  It could happen to you one day.

Our clients tell us that, "I want to control my property while I'm alive and well, and plan for me and my loved ones if I become disabled."

There are four basic disability planning choices:  1) No planning; 2) a Power of Attorney; 3) a Standard trust; 4) a Counseling-oriented trust.

The most common planning issues are: a) Who decides when I lose control?  b) Who takes control?  c) Who gives instructions to the person who takes control?

In most states, if you haven't planned for when you are disabled, your loved ones will have to hire an attorney and go to court.  The judge will decide whether you are disabled, who will be your guardian, and what that guardian can do.  Every state's system is a bit different, but they all have one thing in common:  the Judge is in control.

People often use a General Durable Power of Attorney to prevent guardianship proceedings.  A GDPOA appoints someone as your Attorney in Fact, or agent.  GDPOA's are usually effective immediately, have no reporting requirements, no personal instructions, and have extremely broad powers.  If you look up "lack of control" in the dictionary, GDPOA should be the first definition.  The advantage of this approach is that you get to name the person who is in control.

Standard Living Trusts are often little more than word-processing.  There is no attempt to prepare a personalized plan, so they often use a standard definition of disability, usually based on the option of any doctor with no guidance on which doctor to use.  Doctors are often unwilling to declare someone disabled unless that diagnosis is absolutely certain.  As a result, many families with these trusts may have to resort to the Probate Court to determine whether the planner is disabled.  Additionally, these trusts typically have few personal instructions, but they may provide for a private transfer of control to personally selected trustees.

Most Counseling-orients Trusts provide a personalized definition of disability through a disability panel.  When your loved ones start to think that it's time for you to turn control over to somebody else, they can call the disability panel together to decide whether you are disabled.  Who's on it?  How does it operate? You decide.

Then who takes care of you?  The Successor Trustee you chose when you were well.

How do they care for you?  They follow the instructions you've left behind.  I often ask my clients, "When you need someone to take care of you, would you rather be cared for in your own home, in someone else's home, or in a nursing home?  Everyone has an opinion, but most estate plans doesn't address it!  When you family knows your wishes, they are more likely to be followed.

Many Americans will go through a period of disability.  Planning for your own care has become critically important, as families have become more mobile and fragmented.  With proper planning, you can be well cared for in the way that you want, by the people you have chosen, for the rest of your life.

*Adapted from Planning Partners Press.