Estate Planning: Preparing for the Unexpected

All of us know of someone who has become incapacitated and unable to tend to their financial affairs. However, most people don’t realize that without proper advance planning, this situation can quickly turn into a nightmare. For example, assume that you are married and your husband is left mentally incapacitated as a result of a stroke. You own your home jointly and he owns $250,000 in stocks in his name. You need access to cash for special medical treatments so you plan to sell his stocks, right? Wrong! You do not have the legal right to sell his stocks and since he cannot give you permission, your only alternative is a potentially lengthy and expensive legal process to gain access to his assets…if the court grants you access.

The best defense is to prepare now for the possibility that you may become incapacitated in the future. There are four legal documents that you should consider.

1. Durable power of attorney. With this document, you appoint another person to be your ‘attorney-in-fact’, giving that person the responsibility of making financial decisions on your behalf. You may choose language that provides very broad or narrow powers. For instance, the document can be drafted to allow your attorney-in-fact to act on your behalf only if you are incapacitated (springing power) or it can allow your attorney-in-fact to act on your behalf at any time (general power). Your attorney or financial advisor can advise you which document will be best for you.
2. Revocable living trust. With this strategy, you set up a trust that is revocable (you can terminate it anytime) and transfer title to your assets to the trust. Typically you will be your own trustee, but will also name a successor trustee should you become incapacitated or die. This allows you, not the courts, to control who will continue to manage your financial affairs should you be unable to do so. The revocable living trust also protects your privacy whereas court proceedings may not. However, because of the cost and complexity of this trust, I only recommend it in special situations. For example, I had a client whose relatives threatened to have her declared incompetent and themselves declared trustee for her money as well as her legal guardian. As a safeguard, we used the revocable living trust to make certain that, regardless of the outcome, my client could decide who took control.
3. Healthcare proxy. Similar to the durable power of attorney, the healthcare proxy allows you to appoint the person who will be responsible for making healthcare decisions for you should you be unable to do so.
4. Advanced healthcare directive. With this document, you indicate the level of life-prolonging procedures, pain treatment, etc. that you wish should you be terminally ill and unable to communicate your desires. In Alabama, our legislature has drafted a document that combines the healthcare proxy and advanced healthcare directive. You can receive a copy by visiting the Resource Center at www.welchgroup.com; click on ‘Links’; then click on “Living Will- State by State” .

As you read this column, I urge you to look beyond your own situation and send a copy of this column to friends and family members who may benefit from this advice.

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