We have all read about the importance of having an effective estate plan that clearly outlines the distribution of assets at the end of life, but people often neglect to make arrangements for the management of their finances and healthcare decisions if they are unable to make their own decisions while still living. Unfortunately, many individuals and families fail to plan in this area and do not consider the issues until it is too late. Timing is extremely important, as the capability to make decisions is a requirement to enact legal documents.
As longevity increases, the necessity for planning ahead to ensure that our needs and wishes are honored becomes increasingly important. Incapacity planning allows for clearly defined guidance as to how we want our affairs, health care and other personal decisions handled, and who is authorized to make decisions on our behalf.
Why incapacity planning?
It is important to retain the ability to control your life even if you should find yourself incapable of making decisions mentally or physically. The following documents are vital in describing your wishes and providing direction to your agents:
- Financial Powers of Attorney– A durable power of attorney gives the person that you designate the authority to handle your financial affairs and will continue to be effective if you become incapacitated.
- Medical Power of Attorney– This power of attorney document allows you to designate a trusted individual to make decisions regarding your medical care only if you are incapacitated and unable to make such decisions.
- Advanced Health Care Directive or Living Will– This document outlines the life sustaining medical treatments and procedures that you do and do not want in the event that you cannot make these decisions on your own.
- HIPAA Authorization– Federal and state laws control the medical information that can be released to family and friends in the absence of written direction. A HIPAA Authorization document gives the written authorization required to disclose your medical situation to specific individuals that have you have named.
More importantly though, what happens when someone fails to plan?
If you become incapacitated and have not appointed an agent to make financial and healthcare decisions for you, the laws of many states require that a guardian and/or conservator be appointed. A guardian is appointed to make healthcare decisions, while a conservator makes financial decisions. This process can be expensive and time intensive, and may include a review of the situation by a court-appointed attorney, the preparation of a physician’s competency report, a review by the social services department if care outside of the home is required, and a court hearing. You or your loved ones may be required to pay court costs, attorney’s fees, and other expenses involved in the appointment of a guardian or conservator.
We can never predict the future, but we can plan for it. Don’t wait until it is too late to protect your decision-making ability. These types of topics are often discussed in families, but should be executed within the proper documents in order to make certain that wishes are honored. We work with highly qualified estate planning attorneys in the Denver metro area and are willing to provide referrals. Please do not hesitate to contact us with any of your estate planning questions.
Andrea L. Blackwelder, CFP®, ChFC and Joseph D. Clemens, CFP®, EA are the founders and partners of Wisdom Wealth Strategies. Their shared passion is simple: to bring financial empowerment, understanding, and peace-of mind to people who wish to improve their financial future, build wealth for their families, and achieve financial independence. Click here to find out more about how you can work with Wisdom Wealth Strategies.