Estate planning documents address three distinctive periods in your life: average days while you are mentally equipped to make decisions, days when you are mentally or physically incapacitated, and when you are deceased. The key participants in the planning are the original owners, the individual entrusted with the power of attorney or trustees who will care for you when you cannot care for yourself and your beneficiaries.
Over the last 32 years, I have read and dissected over 1,000 individual trusts represented by more than 100 law firms. As a side note, not all documents are created equally. Regardless of the varying complexities of the three stages of life, the plan tends to invest the most ink on what happens when you have passed away. The undeniable issue is that most of us will endure more time being mentally or physically incapacitated than we care to admit.
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 of the two examine your unique situation and rule on your ability to make sound decisions. Physical incapacitation is more comfortable to address. Using this process as a transfer of authority appears to be a plausible answer where an impartial observer can 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 that is only a small part of the problem. The successor trustees, often the children, are reluctant to have their parents deemed incapacitated.
We mentally slow down as we age. Meaningful decisions will arise over time, but our mental capabilities will likely be diminished. As natural as the aging process seems to be, few plans provide a clear strategy that will protect our futures from our own bad choices.
The process to remove a person's choice is emotionally challenging, and part of the challenge is that the decision is all or none. There are times when we have witnessed children taking the car keys from their father or mother. Short of the few individuals who had to go to a facility, the cases are few and far between when a child – especially an heir – will remove all choices from their parents' control. The default is to do nothing, and then bad things can and do happen.
Documenting the following strategy is difficult and requires clear communication, but my suggestion is to think about incapacity in stages rather than all or nothing. 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.
My suggestion for families is to determine what tasks should transfer to the successor trustees in stages or conditions occurring. Creating and communicating these pre-defined stages provide your caregivers with the emotional permission to do what is in your best interest.
Joseph A. Clark is a Certified Financial Planner and Managing Partner of The Financial Enhancement Group, and an SEC Registered Investment Advisor. 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.