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Estate Planning Essentials: October 2017

Chambliss Estate Planning Essentials brings you legal developments and other trends of vital interest in the world of estate planning. This post is brought to you by Cameron Kapperman and other members of the Estate Planning Practice Group of Chambliss Law Firm.

Planning for the Unplanned:
Incapacity Documents & Peace of Mind

"The calamity that comes is never the one we had prepared ourselves for."
- Mark Twain

Estate Planning Essentials quiz time – which is more important: a comprehensive estate plan that disposes of your assets following your death, or a contingency plan for disability or incapacity that might never be used?
Of course, this is a trick question. While the words "estate plan" often invoke thoughts of "after death," it is equally important to plan for the unplanned during your lifetime, including unexpected disabilities or periods of incapacity. The foundation of this planning includes executing "incapacity documents," including Durable General Powers of Attorney, Durable Powers of Attorney for Health Care, and Advance Directives for Health Care.
What Is an Incapacity Document?
 An incapacity document is a legal agreement whereby one person (the "Principal") grants another person (or multiple persons) (the "Attorney-in-Fact") certain powers. The Attorney-in-Fact can exercise these powers on behalf of the Principal in the event the Principal becomes disabled, incapacitated, or otherwise is incapable of making decisions for himself or herself.
Durable General Powers of Attorney allow the Attorney-in-Fact to exercise certain financial powers for the Principal, as well as serve as the Principal's legal representative to sign contracts, deal with creditors, engage in business, etc. Durable Powers of Attorney for Health Care allow the person designated as Attorney-in-Fact to access health records, consent to treatment, and make other health care decisions for the Principal. Advance Directives for Health Care provide instructions for the Attorney-in-Fact regarding the Principal's treatment decisions for permanent conditions, as well as end-of-life care.
The powers granted to the Attorney-in-Fact under each type of incapacity document can be as broad or as narrow as the Principal desires. Our estate planning team frequently helps clients carefully craft these documents to reflect their specific wishes.
When Do Incapacity Documents Become Effective?
Incapacity documents are usually "durable," meaning that the authority conferred to the Attorney-in-Fact can be exercised on behalf of the Principal even after the Principal becomes disabled or incapacitated. When planning for incapacity, language of durability is important – otherwise, the incapacity document will not be effective when it is most needed. 

Additionally, in most cases, incapacity documents are effective immediately. While incapacity documents that are effective immediately are common, some Principals understandably have questions (or fears) regarding what happens if an Attorney-in-Fact goes rogue and attempts to use their powers while the Principal remains capable of making his or her own decisions. Most of these fears are illusory. First, the Attorney-in-Fact is usually selected because he or she is an individual that can be trusted completely to act only as needed and only in the Principal's best interests. Second, any self-dealing action taken by an Attorney-in-Fact is voidable by a court.
Incapacity documents can also be "springing," meaning that the agreement becomes effective and "springs" into action only when the Principal becomes incapacitated. However, before it becomes effective, a "springing" document requires the named Attorney-in-Fact to prove that the Principal has actually become incapacitated. This often requires a doctor's certification or a court order. When time is of the essence in decision making, the Attorney-in-Fact may not have an opportunity to obtain the required verification; thus, a "springing" incapacity document can prove restrictive or ineffective in certain situations.
Our estate planning team is trained to help clients decide whether their durable incapacity documents should be effective immediately or "springing" based on each client's unique situation.
Why Do You Need Incapacity Documents?
Incapacity comes in different forms and at different times, but for many Americans, it comes nevertheless. Figures promulgated by the Center for Disease Control paint a clear picture:

  • 5 million Americans are living with Alzheimer's disease today, and this number is expected to increase to 14 million by 2050. 
  • Someone in the United States has a stroke every 40 seconds. 
  • 16.3% of Americans have difficulty with physical functioning and mobility. 
  • 12% of adults over the age of 75 need help with personal care. 

If incapacity happens to strike, loved ones will have two choices for handling the affairs: they can either act according to the instructions contained in the individual's incapacity documents, or they can petition a court for the imposition of a conservatorship. One of these options is efficient, cost-effective, and gives the individual some degree of control over how his or her affairs will be handled (hint: it is not the go-to-court option). Quite simply, executing incapacity documents gives loved ones the tools and instructions they need to act on an individual's behalf in the event of incapacity, disability, or any of life's other unplanned circumstances.
In addition to being a practical measure, executing incapacity documents will also provide an individual and his or her loved ones with peace of mind when confronted with unplanned situations. Making decisions for loved ones, particularly end-of-life decisions, takes an emotional toll and can potentially lead to conflict. By designating an Attorney-in-Fact and providing him or her with clear instructions regarding specific wishes, loved ones will be able to act confidently and without having to worry about whether they made the right decision. Peace of mind in times of stress is invaluable. Executing incapacity documents can provide loved ones with that peace of mind.

"Let your advance worrying become advance thinking and planning."
- Sir Winston Churchill

While no one can predict for certain if or when incapacity will strike, the estate planning team at Chambliss is committed to helping clients plan for life's unplanned calamities. If you have questions about incapacity documents or other areas of estate planning, please contact us.