Incapacity Planning

          Jim Hendrix was right when he said: “Life is pleasant. Death is peaceful.  It’s the transition that’s troublesome.”  As baby boomers are moving into retirement at the rate of 10,000 per day many are for the first time thinking about their own mortality and the need to make arrangements for themselves if they cannot handle their own affairs prior to their death.

          The first order of business in planning for incapacity is making sure you have an estate plan.  For most individuals and couple with real property, a simple estate plan will include wills, a revocable trust, durable power of attorneys (“DPOA”)  and health care directives.

          The revocable trust will include real property and any other substantial assets.  However, a revocable trust will not eliminate the need for a power of attorney.  A power of attorney is a written instrument in which one person (the “principal”) designates another person (the “agent”) to act on the principal’s behalf.   Like a revocable trust, a power of attorney allows a principal to entrust the management of his financial affairs to another.  If the power of attorney is made “durable,” it remains in effect even when the principal later loses capacity.  To be a durable power of attorney, it must include the magic words of “This power of attorney shall not be affected by subsequent incapacity of the principal” or similar language.

The advantages of a DPOA are that it is the simplest and least expensive to prepare.  There is also no transfer of title to assets required, court supervision is unnecessary and administrative requirements are minimal.

A DPOA can also be very flexible.  The powers granted to the agent can be very broad or as narrow as the principal wishes.  Sometimes a DPOA is used if a principal is going to be out of the country or is having surgery.

The disadvantageous of a DPOA is that some third parties are still unwilling to do business with an agent despite statutory provision protecting the third parties.  The most common problems arise in the sale of real estate or securities.  On the other hand, third parties usually have little objection to dealing with a trustee acting under a revocable trust.   Another problem of the DPOA is that they are only effective during the principal’s life.  If there is a trust in addition to DPOA, the trustee can immediately exercise all necessary powers to settle the affairs of the trust after the death of the principal.

In conclusion, it is my hope for myself and for you that our transition from life to death is not too troublesome.  To the extent that we plan for the transition, I know it will be easier.  If you do not have an estate plan which includes a durable power of attorney, I recommend that you put it on your list of things to do in the coming year.  If you don’t make a plan for yourself, someone else will and it may not be what you would have wanted.  I see people for a FREE 30 minute consultation at my offices locate in Walnut Creek and Brentwood.

This article provides only general legal information, and not specific legal advice.  Information contained is not a substitute for a personal consultation with an attorney.  Law Office of Joan Grimes, (925) 939-1680. 

© 2013 Joan Grimes