My own experience in the practice of Elder Law and Estate Planning, not to mention the statistics, informs me that many of us will become mentally incompetent before we die. Both my paternal and maternal grandmothers were diagnosed with Alzheimer’s disease and languished for many years, presumably unaware of the reality existing around them, before passing away. Neither owned any valuable assets, both because they were never very well off financially and because, in their time, most couples titled all of their assets in the name of the husband. These days, men and women alike usually die owning much more than the those in the Greatest Generation due to the increasing prosperity of the baby boomer generation and strides made by women in achieving equality. That is why it is essential that everyone prepare for the likelihood that they will one day be unable to effectively manage the assets they have accumulated.
Most people assume that a good estate plan consists of a Will, a General Durable Power of Attorney, a Healthcare Power of Attorney, and a Declaration of Desire for a Natural Death (Living Will). Certainly, such a plan is better than what most have (nothing), but it leaves a huge gap in your planning in the area of incapacity.
A General Durable Power of Attorney is a document that grants legal authority to a person or persons of your choosing to make legal and financial decisions on your behalf and in your stead in the event that you are no longer able to manage your legal and financial affairs effectively due to age, infirmity, incompetence, dependency, or any other reason. Certainly, you need this document in your estate plan, but its shortcoming is that it severely limits a spouse’s or child’s ability to use your assets and funds for things that you certainly would have approved of had you been competent.
A General Durable Power of Attorney places upon the person you name (called the Attorney-in-Fact) something lawyers call a fiduciary duty. A fiduciary duty is a duty that one holds in favor of another wherein they are bound to only do that which is in the best interests of the person who named him or her. In other words, when you name a spouse or child as your Attorney-in-fact, you have placed them in a position in which they are bound by the law to only expend your assets on your behalf. This means that they cannot and must not spend one cent of your money for the benefit of your spouse, your children, or any other person. If the Attorney-in-Fact does so, they are subject to civil and criminal penalties.
Having only a General Durable Power of Attorney in your estate plan to deal with incapacity is a severe handicap for your surviving spouse and children. If you become incompetent and your spouse needs to liquidate and use assets that were titled in your name (e.g., bank accounts in your sole name, vehicles, real estate, etc.) not just for your well-being, but for his or hers, or just as importantly, for a child or grandchild, she would not have the legal authority to do so. I have never counseled with a married individual that did not wish their spouse to be able to spend the incompetent spouse’s money and assets on themselves as if it were her own.
As a basic tenant of Estate Planning, I educate my clients that everyone should have a comprehensive plan to provide for themselves and their loved ones in the event of their incapacity. This plan should include not only a General Durable Power of Attorney which allows a surviving spouse or child to speak with banks, credit card companies, utilities, and other businesses concerning your business affairs, but also a Revocable Living Trust that gives them much more flexibility to expend your assets for not only you, but also your loved ones without fear of running afoul of their fiduciary duty.
I generally draft Revocable Living Trusts as a substitute for Wills because they have this added benefit, among many others. In your Living Trust, you should designate who will manage your assets in the event you are incompetent and on whom those assets may be expended. A typical arrangement is that your spouse will have the power to manage the assets if you become incompetent and that he or she will have the power to use those assets for your needs and, in the event your spouse deems it necessary, also for his or her own needs and the needs of any child or grandchild that your spouse, in her discretion, determines has a significant need.
Failure to have such a plan in place can make the lives of your loved ones infinitely more complicated during an already difficult time. If your current plan does not include a solid plan for incompetency, it may be time for a review.