Challenges of Incapacity: Check Out Powers of Attorney and Trusts

By Deborah K. Spitale, Attorney at Law
Jade Law Offices, LLC
Duluth, Georgia

Member of the national ElderCare Matters® Alliance, Georgia ElderCare Chapter

As our U.S. population grows older, more of us are asking the question, "What would happen to me if I become mentally or physically incapacitated? Who would pay bills and manage my assets?"

Without the proper planning, serious problems can arise for seniors and their loved ones. When an individual becomes incapacitated, a guardian or conservator must be appointed by a court.

This process can be costly and time consuming for all involved, and requires that private health and financial information be disclosed in a court hearing.

The Durable Power of Attorney

The Durable Power of Attorney is a very easy, inexpensive way for you (the Principal) to give another person (the Agent) the ability to make legal and financial decisions on your behalf if you are unable to do so.

In Georgia, you can make your Power of Attorney immediately effective, or you can require a doctor's certificate of incapacity before your Agent can act.

The term "Durable" assures that your Power of Attorney remains effective even if you are incapacitated.

Shortcomings.

Although the person you appoint to act as your Agent is obligated to act as your "fiduciary" and in your best interest, there is no court supervision or oversight.

Therefore, this is not an appropriate tool to use if you do not have anyone you can trust to act on your behalf.

Furthermore, many government and financial institutions will not accept a Durable Power of Attorney for fear that the document has been revoked and is no longer valid. The institution cannot afford to take the risk because it could be liable for honoring an invalid document.

A common practice involves signing an additional document to limit the government's or financial institution's liability.

Another way to verify that your financial institution will accept your Durable Power of Attorney is to introduce your Agent to your financial representative and to have the meeting documented. This would be a great time to find out if the institution requires its own special forms be signed.

Remember, this discussion and planning may not be possible after you become incapacitated. Despite these pitfalls, the Durable Power of Attorney remains an important tool to consider when planning for the management of your financial affairs when you are in most need of help.

Plan ahead, and discuss your intentions with your family and bankers to assure your documents and wishes are honored.

Durable Power of Attorney in combination with a Revocable Living Trust

A strategy that provides even more protection includes combining a Durable Power of Attorney with a Revocable Living Trust.

A Revocable Living Trust is a document that allows you (the Grantor) to transfer assets to an individual or institution (the Trustee). You can serve as the initial Trustee. In the event of incapacity, the Trust can provide for an alternate Trustee to manage the Trust for you. In this situation, the Trustee has title to the assets so there is not a problem with financial institutions accepting the documents. The Trust can be used to manage your assets, pay bills and ultimately pass your assets to your beneficiaries.

Drawbacks.

It is more expensive to have drafted due to the complexity involved.

Additionally, to have the Trust function effectively, you must transfer your assets to the Trust. If you become incapacitated before everything has been transferred, your Agent under a Financial Power of Attorney can be given authority to make the transfers.

In the appropriate circumstances, the Revocable Living Trust is a great tool for incapacity planning.

Talk with family and friends

Many families are relieved to know that managing their day-to-day financial affairs in the event of incapacity can be handled outside of the courts. Advance planning is the best way to assure your wishes will be carried out in the event of incapacity.

First, you should spend the time discussing all of the available options to come up with the best solution for your circumstances.

Second, you should consult with the appropriate attorney to help design a plan.

Ultimately, you will have peace of mind knowing that if you are no longer able to manage your finances, they will continue to be managed as you originally intended.