This post is the fifth in a series regarding estate planning. So far the writings have covered the goals of estate planning and how things can go wrong if a person has not done it. They also discussed how wills and trusts help with the first estate planning goal of transferring a person’s assets the way he wants and efficiently after his death (although the trust does much better with being efficient about it, saving his loved ones lots of time and money).
This writing is going to discuss how to accomplish the second estate planning goal, which is making sure that someone a person knows and trusts will have the legal authority to take care of her if she cannot take care of herself anymore in the future for some reason.
If a person cannot take care of himself anymore, then he is said to be incapacitated. One may be incapacitated if, for example, he was in a car accident and now is in a coma, suffered a stroke, or has dementia, etc. It is important to plan for these things, and as one can see, a person can become incapacitated at any age.
If a person does not plan for these things and she becomes incapacitated, then a conservatorship court proceeding may be necessary to provide someone else with authority to manage her affairs for her.
4 Basic Documents
There are four basic documents that accomplish the goal of making sure that someone a person knows and trusts will have the legal authority to take care of him if he cannot take care of himself anymore in the future for some reason:
- a trust
- a power of attorney for financial management
- a power of attorney for health care
- a disclosure authorization
The prior two writings already discussed the trust, and this writing is going to discuss it again. The trust does double duty because it helps to accomplish both of the goals of estate planning.
As mentioned in the third writing, the trust ordinarily will name the person who created it followed by others as the succession of trustees to be in charge of managing that person’s assets. The next trustee in line after her will take over if the first person becomes unable to manage her affairs anymore in the future for some reason. Then that next trustee in line will manage the assets of the person who created the trust for her sole benefit until her death because she is the initial beneficiary of her trust for her lifetime. So she will benefit from her assets until her death no matter who is the trustee in charge. (And it is common for a trust to be for the benefit for two people such as a married couple.)
And the person who created the trust has selected in advance who that person will be so she knows it is someone she knows and trusts.
Just as a person needs a pour-over will along with his trust at death, he needs a power of attorney for financial management along with his trust during his lifetime. The power of attorney for financial management will name someone that he knows and trusts to manage all of his finances and assets, and that person probably should be the same person as the trustee of his trust.
This document covers a person’s finances and assets that are not assets of the trust. So between the trust and this power of attorney for financial management this trusted person will have the power to control all of a person’s assets for her benefit during her lifetime.
So far this writing has discussed only finances and assets. There is another critical component to a person’s life–his personal care, including his well-being and medical decisions.
One needs a power of attorney for health care to name someone that she knows and trusts to make her personal care decisions for her if she becomes unable to manage her affairs anymore in the future for some reason. Then this named person will be able to manage all of her personal care decisions for her, including where she lives, who she spends her time with, and what medical treatments she receives.
The power of attorney for health care document should include a lot of specific directions that specify different types of medical treatments that the person wants in different types of situations. That way the person she named to be in control will have a road map to use to carry out her wishes (because she will not be able to communicate her wishes for herself anymore at that point).
Finally, one should have a disclosure authorization document. It does not provide anyone with powers. Rather, it authorizes his medical providers to communicate his confidential medical information to the people he named in his trust, power of attorney for financial management, and power of attorney for health care. That way the people that he named will have the information they need to make his decisions for him.
By the way, it is fine to name two sequences of people. A person may want to name one sequence of people to manage her assets and finances through the trust, will, and power of attorney for financial management while she names another sequence of people to manage her health care through the power of attorney for health care. That is fine because managing assets and finances draws on a different skill set compared with managing personal care. Still it is important that everyone she names in all of the documents get along well.
Do not be too concerned about the titles of any of these documents. What is more important is the substance of what they say. A power of attorney for financial management may be called a power of attorney for asset management or simply a power of attorney. Similarly a power of attorney for health care may be called an advance health care directive.
Only one more post remains in this estate planning series. It will discuss who needs to have estate plan documents in place.
