Most people comprehend the necessity of having a Will for the orderly transfer of their assets when they die. Fewer people realize the importance of planning for incapacity. Perhaps this is because while mortality is 100% certain, disability is less certain.

According to the Council for Disability Awareness, over 1 in 4 of today’s 20-year-olds will become disabled before they retire, and mental disorders comprised almost 9% of the disability claims in 2012.* While it’s less than likely that you could become mentally incapacitated before you retire, the possibility increases in your senior years.

Incapacity can produce many negative effects beyond the mental disability itself. Once incapacitated, you will probably not be able to create or modify an estate plan. It’s essential that you execute your plan while you are able, therefore. Incapacity also subjects you to the risk of damage to your assets, either by actions you take while unable to understand the peril, or by actions undertaken by others around you.

To protect yourself against these negative effects, you should have the following in place, at a minimum: i) your Will; ii) your health care proxy/living will; and iii) your power of attorney. Your health care proxy designates an agent to make health care and medical decisions for you in the event that you can’t express your wishes. A living will acts as instruction to that agent as to what you would like to have done in the event that you are in an irreversible state of unconsciousness.

In a power of attorney, you designate an agent to handle your personal business affairs, such as real estate transactions, banking and making gifts. If it is a Durable General Power of Attorney, the authority is granted when you sign the document and remains in place if you should become incapacitated. If it is a “springing” variety, the authority becomes activated by a physician’s statement that you are unable to handle your affairs.

These documents are essential because if you become incapacitated without having executed them, there will be nobody in place with legal authority to handle your health care and personal business. In that event, it may be necessary to have a guardian appointed to make such decisions on your behalf.

A guardianship requires a court proceeding which are not private in most cases. The process of appointing a guardian can be invasive, tedious and expensive, and the guardian must submit annual reports to the Court until the guardianship is terminated under Court approval.

You can avoid the necessity of a guardianship by having a health care proxy and power of attorney, as you’ll have your agents in place should you need them to act for you. If your agents are close to you, they will hopefully be in a good position to gauge when you need them to step in for you. But what if your agents are not close to you, either geographically or emotionally? Or what if you don’t have someone in your life who would be appropriate to serve as your agent? One solution you could consider is establishing a revocable living trust.

A revocable living trust is a trust that you set up during your lifetime. You can retain full control over the assets you title in the name of the trust by being the trustee. The trust would include provisions directing how your assets should be distributed or maintained after your death, yet would be fully revocable by you during your lifetime. You would name a successor trustee to oversee the trust assets at your death. Your trust could provide that in the event that you become incapacitated, the successor trustee will step in for you to continue to see that your financial needs are met and that your assets are properly managed.

While it is rare for a corporate trustee such as a bank to serve as an agent under a power of attorney, bank trustees are well-equipped to take over bill-paying and other oversight in a successor trustee arrangement. Revocable living trusts can have additional benefits beyond continuity of management, such as avoiding probate and enhancing privacy.

How We Can Help

If you would like to learn more about Canandaigua National Bank & Trust’s capabilities as successor trustee, please let your advisor know or call the Wealth Strategies Group at 585-419-0670. We would be pleased to talk or meet with you.

*www.disabilitycanhappen.org, Disability Statistics, July 2013.