Planning for Incapacity: Establishing an Incapacity Plan

Incapacity The word “incapacitation” sounds frightening. Imagine lying in a bed and not being able to physically or mentally care for yourself or make decisions.  That is a scary prospect, right?  However, what’s even more frightening is being incapacitated and not having anyone with the legal authority to handle your finances or make medical decisions for you.   If you are incapacitated, who would pay your rent/mortgage?  Who will have access to your bank accounts to pay your bills or pay for your medical care?  That’s why it is critical for to you to stop procrastinating and get an incapacity plan.

Without an incapacity plan in place, a court will designate someone to handle your financial affairs during your period of incapacitation and someone to make medical decisions for you. You will have no say in the appointment of this individual, who will be delving into the deepest corners of your financial life and deciding how to manage your money and property.  Wouldn’t you rather choose your own representative, someone who knows you well and has your best interests at heart?  Here are a few steps to get you started.

Step #1: Get an Estate Plan that Includes an Incapacity Plan

Each person over the age of 18 should consult an estate planning attorney and create four important documents.

  • A will – to determine how your assets will be distributed if you pass away
  • A financial Durable Power of Attorney – to name someone (your agent) to manage your finances when you cannot
  • An Advance Health Care Directive – to name someone (your agent) to make medical decisions for you when you cannot
  • A Living Will – to provide instructions for your medical care if you cannot make medical decisions for yourself

By creating documents like a Durable Power of Attorney, Advance Health Care Directive and Living Will, it is possible for you to have your personal affairs and decisions, including medical and end of life decisions, handled by someone you trust. Failure to plan for incapacity and disability means that a court supervised guardian will be making decisions for you.

You may not know it, but disability and incapacity are major problems. However, with a little planning it is possible to make things much easier for yourself and your loved ones during such difficult and stressful times.

When talking with your attorney about your incapacity plan, make sure you discuss the following:

  • How to select an appropriate agent to act on your behalf
  • How to prepare your agent to act if called upon
  • Titling of your assets
  • Preparation of an overall plan so there is a smooth transition from you to your agent

Step #2: List Your Assets

First, make a list of all your financial assets and responsibilities. Collect documentation about any stocks, bonds, Social Security payments, disability checks, work compensation, insurance money, and real estate income. In this digital age, your list will need to include account information like usernames, passwords, and answers to security questions. Make sure that you keep this list in a safe place, such as a safety deposit box, but leave clear access instructions with your agent or with your lawyer.

Step #3: Document Your Expenses

If you are temporarily incapacitated, you’ll need someone to pay your mortgage and bills until you recover and take over your affairs again. Leave clear, detailed information about tax payments, mortgage payments, car payments, utilities, credit card bills, and other bills. Put this documentation in the same place as your asset information, perhaps in a fireproof lockbox at home or a safety deposit box at your bank.

Step #4: Streamline Your Finances

As you think about your financial affairs, consider how you might consolidate some of your assets. Maybe you have small debts spread out over several credit cards. Perhaps you could pay off and close out a few cards and keep two or three for regular use. That way, your agent doesn’t have to keep track of so many different accounts.

Do you have money in a few different banks or resources invested in a large number of places? Try to simplify those financial assets as well. Your monetary affairs are far less likely to become tangled up and mishandled if you streamline everything and make it simple for your family.

Step #5: Consider Long-Term Care Insurance

Imagine you have a medical condition that might one day put you in need of long-term care? How will you pay for it? Studies show that about 41% of long-term care services in the U.S. are going to individuals under 65 years of age. Take steps today to lift the financial burden of long-term care from the shoulders of your loved ones. Check into long-term care insurance and talk to your lawyer about streamlining your financial life.

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About Nicole K. White

After losing a close relative, Nicole witnessed the devastation, enormous expense and chaos caused by not having a simple estate plan. It is Nicole’s mission to educate parents, especially single parents, about protecting themselves, their families, minor children, and assets with comprehensive Estate Planning.

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