INCAPACITY PLANNING

If you become incapacitated in California without a valid power of attorney, your spouse, children or other family members do not necessarily have automatic authority to manage your finances, sign documents, access accounts or handle your property for you.

Depending on your circumstances and how your assets are owned, someone may need to ask a California court for authority to act on your behalf.

In some cases, that can mean a conservatorship proceeding—a court process in which a judge determines whether you need assistance and, if so, who should be appointed to manage your financial affairs or personal care.

A properly prepared estate plan can allow you to decide in advance who you trust to act for you if you cannot act for yourself.

A power of attorney is a legal document in which you – the principal – authorize another person, called your agent or attorney-in-fact, to act for you in specified matters.

Depending on how the document is written, that authority can include matters involving:

• Bank and financial accounts
• Bills and household expenses
• Real estate
• Contracts
• Insurance
• Taxes
• Business matters
• Investments
• Government benefits
• Other financial and legal transactions

A durable power of attorney can be written so that the agent’s authority continues even if you later become incapacitated.

California Courts identifies a durable power of attorney as an important planning tool for arranging for someone to handle financial matters if you become unable to manage them yourself. (California Courts)

Incapacity does not necessarily mean being unconscious or permanently disabled.

A person may become unable to manage financial or personal affairs because of:

• Serious illness
• Stroke
• Dementia
• Alzheimer’s disease
• Brain injury
• Accident
• Surgery or medical complications
• Cognitive decline
• Other physical or mental conditions

Incapacity can be temporary or permanent.

That is one reason estate planning should address what happens while you are alive, not simply what happens after you die.

Not necessarily.

Marriage does not automatically give one spouse unlimited authority to sign every legal document, access every individually owned account, sell or refinance every asset, or make every financial decision for an incapacitated spouse.

How much authority another person has depends on the type of asset, how it is owned, existing agreements and other circumstances.

If important property or accounts are solely in your name and no authorized person can act for you, your family may have to find another legal method of obtaining authority.

That can be considerably more complicated than signing appropriate estate-planning documents while you still have capacity.

Adult children also do not automatically acquire general authority over a parent’s finances simply because the parent becomes incapacitated.

Your son or daughter may be the person you would naturally want handling your affairs. But wanting that person to act and legally authorizing that person to act are two different things.

A power of attorney allows you to make that choice yourself.

Without appropriate advance planning, a court may ultimately become involved in determining who has authority.

Potentially, yes.

If an incapacitated adult cannot manage financial or personal affairs and there is no adequate alternative already in place, a family member or another interested person may petition the Superior Court for a conservatorship.

California Courts describes a conservatorship as a court case in which a judge appoints a responsible person or organization to care for another adult who cannot care for themselves or manage their own finances. (California Courts)

There are generally two major areas involved:

Conservator of the Person – A conservator of the person may be responsible for aspects of the individual’s personal care.

Conservator of the Estate – A conservator of the estate may be responsible for managing the individual’s finances and property.

Depending on the circumstances, one person may serve in both roles or different people may be appointed.

A Conservatorship Is Very Different From Choosing Your Own Agent: This distinction is important.

With a power of attorney: You choose the person.

You decide whom you trust while you have the legal capacity to make that decision.

With a conservatorship: A court becomes involved.

Someone petitions the court. Required notices are given. The proposed conservatee has legal rights in the proceeding. An investigation may occur.

A hearing is held.

And ultimately a judge determines whether a conservatorship is necessary and who should be appointed.

California Courts emphasizes that conservatorships are court proceedings and that judges are required to consider whether less restrictive alternatives could meet the person’s needs. (California Courts)

Planning ahead can help create those alternatives.

Conservatorships Can Involve Continuing Court Supervision

Obtaining the initial appointment may not be the end of the process.

A conservator can have ongoing legal responsibilities.

Depending on the type of conservatorship, those responsibilities can include:

• Filing inventories
• Managing assets
• Keeping financial records
• Providing accountings
• Obtaining court approval for certain actions
• Reporting to the court
• Following statutory duties and restrictions

That can create additional time, expense and administrative work for the family.

More importantly, it means decisions concerning your affairs may become subject to a court-supervised process that could potentially have been addressed through advance planning.

A Power of Attorney Is Not the Same as a Healthcare Directive – This is another common misunderstanding.

A durable power of attorney for financial matters generally addresses financial and legal affairs.

An Advance Healthcare Directive addresses medical decision-making and healthcare wishes.

California allows you to use an Advance Healthcare Directive to name an agent to make healthcare decisions if you are unable to make them yourself and to provide instructions concerning your healthcare. (California Courts)

A comprehensive estate plan therefore commonly includes both documents.

Financial Decisions – Durable Power of Attorney
Healthcare Decisions – Advance Healthcare Directive

You may want the same person serving in both roles—or different people.

The important point is that you make those decisions in advance.

A Living Trust can provide another important layer of incapacity planning.

When assets are properly held in a revocable Living Trust, the trust document can establish who will manage those trust assets if you become unable to serve as trustee.

You generally serve as your own trustee while you are capable.

The trust names a successor trustee who can assume responsibility under the circumstances specified in the trust.

That can provide continuity for trust-owned assets such as:

• Real estate
• Bank accounts held by the trust
• Investment accounts held by the trust
• Other trust property

California Courts specifically identifies avoiding a conservatorship as one potential reason people create Living Trusts, because a successor trustee may be able to manage trust assets if the person becomes incapacitated. (California Courts)

Because they serve different purposes.

A successor trustee generally has authority over assets owned by the trust.

A power-of-attorney agent may need to deal with financial or legal matters that are outside the trust.

For example, an agent might need authority to address:

• Individual financial matters
• Taxes
• Government benefits
• Contracts
• Insurance
• Assets that were never transferred into the trust
• Other transactions authorized by the power of attorney

This is why comprehensive estate planning involves a coordinated set of documents, rather than simply creating a Living Trust and assuming everything has been addressed.

Incapacity Planning Is Especially Important for Homeowners

Suppose you own a Marin County home and become seriously incapacitated.

Someone may need to:

• Pay the mortgage
• Pay property taxes
• Maintain homeowners insurance
• Arrange repairs
• Deal with tenants
• Communicate with lenders
• Manage household expenses
• Sell or refinance property if circumstances require it

Whether another person has authority to take those actions can depend on how the property is titled and what planning documents you have in place.

For someone with substantial assets, waiting until incapacity occurs to determine who has authority can create unnecessary difficulty at exactly the time the family is already dealing with a crisis.

“My Family Knows What I Want.”

That’s valuable.

But it isn’t the same as giving them legal authority to carry out those wishes.

Your family may know:

• who you trust
• how you want your finances managed
• what medical treatment you would or would not want
• what should happen with your home

But banks, title companies, financial institutions, healthcare providers and other organizations may require legally sufficient authority before allowing another person to act.

Estate-planning documents turn your intentions into an organized legal plan.

The best time is generally before you need it.

A person must have the required legal capacity when executing estate-planning documents.

If you wait until serious cognitive impairment or incapacity has already occurred, creating a valid power of attorney may no longer be an available solution.

That is one of the most important reasons not to postpone incapacity planning.

You are not creating these documents because you expect to become incapacitated tomorrow.

You create them so there is a plan if the unexpected happens tomorrow.

The decision deserves careful thought.

Your agent may be entrusted with significant authority.

Consider someone who is:

• Trustworthy
• Responsible
• Financially capable
• Organized
• Available when needed
• Willing to serve
• Able to make difficult decisions
• Likely to follow your wishes rather than their own preferences

You should also consider naming an appropriate successor agent in case your first choice cannot or will not serve.

The person who is best suited to make financial decisions may not necessarily be the person best suited to make healthcare decisions.

Your estate plan can reflect that distinction.

The answer depends on your assets and circumstances.

Some jointly owned property and existing arrangements may allow another person to handle particular matters.

But there is no guarantee that your family will automatically have all the authority they need.

If adequate alternatives are unavailable, your family may need court involvement—including potentially seeking a conservatorship—to obtain authority to manage your affairs.

The better question to ask while you are healthy is:

If I couldn’t make decisions tomorrow, who would have legal authority to act for me?

If you don’t know the answer, your estate plan may be incomplete.

A Complete Estate Plan Addresses Life as Well as Death

Estate planning isn’t simply deciding who inherits your property.

A complete plan should address:

• If You Are Healthy
• You remain in control.
• If You Become Incapacitated
• People you selected can have appropriate authority to act.
• When You Die

Your assets can be administered and distributed according to your plan.

Those are three different stages—and good estate planning addresses all three.