Our mental capacity for decision-making and dealing with change reduces as we age. Most of us recognize when we are “slipping,” but we don't fully realize the extent. Most of us will go through life periods where we can make decisions, periods when we are mentally or physically incapacitated, and finally, the time when we pass. Your estate plan should address all three time periods. In our opinion, rarely is the middle stage adequately addressed.
Trusts contain standard clauses required to facilitate your wishes and direct your successors in the event of your passing. Regardless of the varying complexities in each period of life we listed above, most of the vocabulary on the estate document pages is designated to handling assets when you have passed. Statistically, most of us will likely spend more time being incapacitated than we care to acknowledge, or prepared for financially, emotionally, and legally.
Legal documents usually contain the requisite protocol for your power-of-attorney or successor trustees to take charge. The removal of a trustee typically requires that a doctor, judge, or combination examine your status and rule on your ability to make decisions. Physical incapacitation is apparent, but mental capacity is another story.
The legal process for transferring authority is plausible, allowing an impartial observer to make a tough decision. As practical as it sounds, no solution is viable if not implemented. Doctors are reticent to render negative capacity calls, but this is only one issue. The successor trustees, often the children, are reluctant to have their parents deemed incapacitated.
Aging is not easy, and recognizing our own impediments is complex. Though the process is natural and readily agreed upon regarding others, many estate plans fail to provide a clear strategy directing our heirs on how and when to protect us from our own bad choices, primarily created by a mental slow-down.
Acknowledging the difficulty of removing a parent from power is fraught with issues, it is easy to see why few children take the reins from their parents. The process of removing a person's independence is emotionally challenging and time-consuming. Adding to the issue is the process is an all-or-nothing decision. One day your father can make all his own decisions, and the next day you have total control. The default choice is to do nothing; however, we often see that bad things can and do happen when this is the case.
Documenting a disciplined strategy can be difficult and requires thoughtful communication. When appropriate, we suggest thinking about incapacity in stages rather than an all-or-nothing deal. For example, there will be times when you may need assistance with complex financial issues and yet still be able to write a check to your church. Our suggestion for families is to determine what tasks should transfer to the successor trustees in incremental shifts of responsibility as conditions occur. Creating and communicating a pre-defined plan provides your caregivers with the emotional permission to do what is in your best interest when it is most needed.
Joseph A. Clark is a Certified Financial Planner and Managing Partner of The Financial Enhancement Group, and an SEC Registered Investment Advisor. This article co-authored with Grant Soliven. Contact Joe at yourlifeafterwork.com or 800-928-4001. Securities offered through World Equity Group, Inc. Member FINRA/SIPC. Advisory services can be provided by the Financial Enhancement Group (FEG) or World Equity Group. FEG and World Equity Group are separately owned and operated.