Posts tagged incapacity
How do I plan for incapacity using my revocable living trust?

One of the major objectives of using a revocable living trust is to plan for incapacity. For that reason, revocable living trusts typically contain a provision that provides for a successor Trustee who is able to manage the assets of a trust for the benefit of the Trustor (the creator of the trust) while the Trustor is incapacitated.

The standard for when the successor Trustee will assume the role of Trustee usually depends on the medical determination of one or more physicians. Some trusts may also allow the successor Trustee to make this determination based on his or her personal judgments. As a practical matter, however, financial institutions that hold the trust assets may have a difficult time accepting an informal determination by a successor Trustee.

If relying on the certification of one or more physicians, it is important to ensure that an Advance Health Care Directive naming an agent is in place. A physician may decline to render an opinion regarding the current Trustee's capacity without a document allowing disclosure of sensitive medical information.

As our population's lifespan increases, the risk that a portion of it may be spent in an incapacitated state makes it even more important to ensure that proper measures are in place to plan for these situations.

What if I want to leave property for someone who is incapacitated?

Estate planning tends to be heavily focused on the care of loved ones. One difficulty you or someone you know may face is figuring out how to leave behind assets to care for someone who is mentally impaired or disabled to a degree that he or she cannot function independently. Some of the same considerations involved in leaving assets to a minor child are also relevant here.


Any gifts that you make or assets you leave behind for an incapacitated person who cannot manage his or her affairs, would ideally be in the form of a trust. The Trustee of the trust can then manage those assets in a way that will be effective for the beneficiary. The Trustee can also make distributions for the benefit of the beneficiary in a way that will enhance the beneficiary's lifestyle. Frankly, the beneficiary may not even understand or be capable of comprehending the existence or nature of the trust.

Special Needs Trust

One concern that crops up for certain disabled beneficiaries is the potential loss of public benefits they may be receiving. If the beneficiary is receiving public benefits or government assistance, it's possible that your gift to them in the form of a trust or otherwise may jeopardize the beneficiary's eligibility for the public benefits and government assistance. In this scenario, it may be prudent to establish a "special needs trust" that limits how the trust assets are used so as not to cause the beneficiary to forfeit his public benefits.

Deciding the best way to leave assets to an incapacitated person can be difficult. It may depend on their level of disability, the value of the assets that you wish to give to them, or whether or not they are receiving government assistance. Having an estate planning lawyer explain the possible consequences and pros/cons of the different approaches could help you ensure that you are doing what is in the best interest of the beneficiary.

Why can't I transfer my property?

Sometimes the obstacles to transferring property for estate planning purposes are outside of your control. The restrictions may be due to your marital status or status as a registered domestic partner, or the type of asset, such as an interest in a trust for which you may be beneficiary (i.e., a trust that was not created by you, but for your benefit).

However, restrictions may also be self-imposed, such as by agreements that you have with others not to transfer your property. A major hurdle in transferring property occurs when the transferring person loses the capacity to make the transfer.

Finally, even if you have the legal ability to make the transfer, you may nonetheless, wish to retain absolute control over property.

Lack of Legal Capability

A risk faced by some individuals is the possibility that someone will challenge the estate planning documents after you pass away. This often comes in the form of a challenge to the Will or other estate planning document that you've created.

You may have heard of this terminology before, but the challenges can range from the following:

  1. Failure to follow the formalities required when signing the estate planning documents. 
  2. Lack of capacity, mental or otherwise, to sign the estate planning documents.
  3. The assertion that there was fraud, duress, or undue influence.

Risk Minimization

If you are clearly competent, and your lawyer is not in a position where there's a conflict of interest, others are not unduly influencing the decision-making or otherwise inappropriately pressuring you to make a decision, and the proper formalities of signing your estate planning documents are followed, the risk of someone challenging your estate plan is relatively low. 

Although estate planning may present challenges even after the documents are prepared and signed, the risk of having your transfer fail can be minimized by introducing an independent lawyer to draft the documents. He or she can be on the lookout for potential future causes of challenges to your estate plan and can help you to navigate away from them.

What is a Durable Power of Attorney? (A Brief Overview)

A shorty, but a goody today. The Durable Power of Attorney is a legal document that allows you to name someone (also known as an "attorney-in-fact" or "agent") to make financial decisions for you. The Durable Power of Attorney can even be drafted broad enough to allow the agents to make gifts on your behalf or to transfer assets to your revocable living trust if you have created one. This document is only effective while you're alive. 

Why Do You Need One?

Most people only plan for death, but with advancements in medicine, it's possible to be alive for quite a while but be incapacitated to the point where you're unable to make decisions regarding your assets. Having a Durable Power of Attorney can help you avoid a court-supervised conservatorship and may allow your loved ones to act more quickly in the event that something happens to you and important decisions need to be made regarding your financial affairs.

Overlap With Trustees?

You may be thinking that the agent under a durable power of attorney would seem to have a conflict of interest with the Trustee of your Trust, but that is generally not the case. First, the agent under your Durable Power of Attorney is often the same individual that you've chosen to be your successor Trustee. Second, your Trustee deals with assets contained within your revocable living trust, whereas the agent under your Durable Power of Attorney principally deals with assets that are outside of your trust.

The Durable Power of Attorney is frequently a standard document that is incorporated into an estate plan, so don't be surprised if your estate planning lawyer includes one for you as well. Even if the cost of estate planning is outside of your budget, I encourage everyone to have a Durable Power of Attorney, as it is inexpensive to prepare and can even be found in the California Probate Code (Section 4401).