Incapacity Planning – “What if I Can’t Take Care of Myself?” – What Happens if I Don’t Plan?

When people think about estate planning, people immediately think of what will happen to their property after they die. But estate planning covers much more than that. A competent estate planner will also counsel clients to plan for incapacity. Incapacity is when a person is unable to make financial and/or health care decisions for themselves. Incapacity can be caused by accident, disability, illness, or old age. And the fact is, in today’s world and with today’s medical interventions, the chances are that any one of us will be incapacitated at some point, either temporarily or permanently. In fact, the U.S. Department of Health and Human Services estimates that 70% of people currently turning age 65 will need long-term care at some point. So, how should you prepare?

This post is the first in a series of five posts on incapacity planning tools available in Minnesota including Power of Attorney, Health Care Directives, Long-Term Care Insurance, and Business Succession Planning.

What Happens if I Don’t Have Incapacity Planning?

If you become incapacitated and do not have a power of attorney or health care directive, your family may have to go to court in order to seek guardianship and/or conservatorship over your person and your assets. This is an expensive, time-consuming process that can be easily avoided. If family members can’t agree, costs and delays will increase significantly. Second marriages, estranged spouses, and frayed parental relationships are all ripe for disagreement. An estate planning attorney can help make your wishes clear and avoid needless litigation. Failing to plan can significantly drain financial resources and destroy relationships among your loved ones.

If you are unprepared for the costs associated with long-term medical care, the drain on your resources can be severe. In the worst case scenario, a person or couple’s assets can be totally drained within a few years trying to private pay for long-term nursing care. Even if only one person in a couple needs care, the assets of both parties must be significantly reduced before the spouse needing care will qualify for Medicaid/Medical Assistance.

If you have a business, your incapacity can run it into the ground in a relatively short period of time if you don’t have a plan. Your clients will leave because work isn’t being done or important deadlines are missed. Alternatively, your business may have to close because your partners can’t afford to buy your ownership share and you need the money.

Who Needs Incapacity Planning?

Incapacity planning documents are used to appoint an agent to act on your behalf if you are unable to do so. Everyone who is a legal, competent adult is responsible for his or her own health care decisions and property. Any individual, regardless of age, can be incapacitated unexpectedly and should have a backup plan.

While the elderly are more likely to succumb to physical and mental health issues, young adults can also fall victim to unexpected medical conditions or injuries. In such cases, parents and other relatives of young adults have been denied access to the individual, their medical records and their assets without the correct documents.

Business owners have an obligation to their clients or customers, their family members who would be expected to manage an emergency, and/or their business partners to have an incapacity plan in place. You won’t have customers for long if you don’t have someone designated to step in and make sure customers aren’t left in the lurch.

Young or old, once the individual is incapacitated, it’s too late to have the document prepared and executed. The cost of having a proper incapacity plan is minimal in comparison to the risks and burdens of not having one when it is needed.

So, now you know a plan is needed. Where do I start, you say? Part 2 will explain a financial Power of Attorney…