Estate planning is often associated only with very wealthy families and trust funds. While transferring wealth from one generation to the next is generally the brunt of estate planning, it’s far from the
Planning for our own financial care once we lose the ability to handle our own finances, and for our health care decisions is an important part of estate planning. So is planning for the care of our minor children, both in terms of actual caregiving, and with regard to financial well-being. Asset protection is also another integral component in comprehensive estate planning. Each of these are discussed in turn in this blog.
A. Mental Incapacity and Your Finances
Modern health care is becoming better and better at extending our physical lives, and keeping us ticking for longer and longer. Plastic surgeons and drug companies are, daily, coming up with new ways to keep us looking young and vital. However, modern science has made few advancements in the area of maintaining our mental health as we age. As discussed in our 9-17-2015 blog, this is a particular area of concern given the current demographics of our country.
As we age, our mental capabilities often decline. The vast majority of seniors at some point begin to experience memory loss, decreased thinking skills, communication problems, diminished ability to pay attention or stay focused, and/or a decreased ability to reason. About 5.3 million Americans have Alzheimer’s - the most common form of dementia - and one in three seniors dies with Alzheimer’s or another dementia (http://www.alz.org/facts/). There is no known cure for Alzheimer’s at this time.
In law, we often refer to one’s legal “capacity.” Capacity refers to a person’s mental ability to perform certain tasks and/or understand certain key facts. There are several levels of legal capacity, including contractual capacity, testamentary capacity, and the capacity to marry. These are discussed further in our blog, here. The long and short of it is, however, our ability to control our own lives diminishes with capacity. Not only do we lose the legal capability to, for instance, sign a will, enter into a contract, or even get married, we can (and often do) also lose the ability to care for ourselves. Things like paying the electricity bill, or the ability to get ourselves to and from the doctor’s office, slip out of our control. This is an understandably terrifying concept for all of us.
Despite–or more likely because of–the terror of losing power over our own lives, many people do not plan for their own lack of capacity. What happens when we lose the ability to tend to our own affairs, and begin forgetting to pay the bills, or become susceptible to scams and other predatory individuals? By planning for our incapacity, we can set some safeguards in place that will both ensure our continued well-being and also protect our assets from people who would use our incapacity to their own benefit.
Depending on your individual situation, generally, the most effective means of planning for your incapacity is the use of a trust. By placing all your assets in trust, you retain complete control, but also have a simple and quick means of passing control over ALL of your assets once you lose capacity, AND you can designate the person or persons whom you would like to take over your finances. Moreover, you can designate the manner by which you can be removed from control – a sticky situation, since most of us do not like to acknowledge that we are declining mentally.