One of the most important aspects of estate planning is what I call “lifetime planning” also known as incapacity planning. That lifetime planning includes incorporating documents into your estate plan to provide decision making power to your loved ones in the event that you are unable to make decisions for yourself. These documents include a revocable living trust in which you name a successor trustee, a financial power of attorney, and a health care power of attorney.
When you name someone as your successor trustee under your revocable living trust, they are able to act on your behalf with regards to any trust assets. Typically this will require that trustee to obtain doctor’s certifications attesting to your incapacity. In the event of this, it can be easier for that successor trustee to deal with financial institutions if they also obtain a new certificate of trust. A certificate of trust is a short document that a trustee can provide to a bank or financial institution that certifies that a particular trust exists, who the trustees are, and other identifying information regarding the trust.
The person named in your financial power of attorney will serve a similar role to the trustee, but will be able to manage any non-trust assets. It is generally recommended not to execute a “springing” power of attorney, or one that becomes effective upon your incapacity, because practically speaking, it can become very difficult to convince a bank or financial institution that you are in fact incapacitated and that your agent has the authority to act.
A health care power of attorney will be used if it any time you are unable to make health care decisions for yourself. This document is designed to give doctors the assurance that they need that the person they turn to in the event of your incapacity does in fact have the authority to make decisions on your behalf.
Incapacity planning can be just as important, if not more important, than planning for death. If you feel you need assistance in understanding how they work, contact your estate planning attorney.
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- Using Life Insurance to Provide Liquidity in an Estate - March 10, 2022
