The Basics of Planning for Disability

CLIENT ALERTS Updates on COVID-19 · April 10, 2020

Most estate planning attorneys would recommend that clients always maintain up-to-date health care proxy and power of attorney documents, regardless of whether there is an ongoing public health crisis. This kind of disability planning can avoid significant unnecessary costs and loss of assets during any incapacity, and can also reduce the cost of managing and transferring assets.

As difficult as it may be to think about, the COVID-19 pandemic has increased the likelihood that any of us may require prolonged medical treatment. In response to the current crisis and several recent client inquiries, the Trusts & Estates Group offers the following reminder of the essential, proactive estate planning steps people should take to prepare for potential disability.

Planning for Disability
Any medical emergency can be made much worse when a person becomes incapacitated without having executed both a Heath Care Proxy and Durable Power of Attorney. Without these two basic planning documents, if you become incapacitated, cumbersome and expensive Probate Court intervention in the form of Guardianship or Conservatorship proceedings may be necessary in order to administer medical treatment or allow someone else to access or manage your finances.

As discussed in more detail below, a Health Care Proxy is critical for guiding medical treatment and ensuring that a person’s specific medical needs are met if they become incapacitated and are not able to communicate on their own.

A Durable Power of Attorney allows for nomination of a trusted individual to manage finances, pay bills, mortgages, and conduct business affairs on behalf of an incapacitated person.

Health Care Proxy
The health care proxy authorizes another person (the “health care agent’), such as a spouse, family member or close friend, to make all medical decisions for you if you lack capacity at the time a medical decision is needed. The health care proxy usually only takes effect after a physician has determined that you are incapacitated or otherwise unfit or unable to communicate your own wishes. Health care proxy documents typically need to be presented to medical staff in an emergency, so they should be kept readily accessible.

It is preferable to nominate local, responsive individuals who are familiar with any specific medical needs you may have to act as your proxy. However, this is not required, and the choice of whom to nominate is personal to each individual. We typically recommend that clients also consider nominating a backup health care agent in the event that the first choice is not available.

Many hospitals provide basic health care proxy forms at time of admission. However, you may be unconscious or incapacitated at that time, and therefore unable to sign any documents. Standard hospital forms are also limited in scope, and cannot be customized to account for the individual needs and desires of each patient, nor do they allow for any advance or specialized planning. As with any important decision, it’s best to take time to reflect on the choices contained in a health care proxy document, and not make them under duress.

Durable Power of Attorney
A durable power of attorney is used to nominate a person to have legal authority to access and manage your finances and conduct business transactions on your behalf if you become incapacitated. A durable power of attorney can be limited or general. Under a limited durable power of attorney, your attorney/agent’s authority is limited to specified acts. For example, you could limit your agent’s authority to the sale of a specific piece of real estate, the signing of a contract, funding of a trust, or the execution of tax returns.

Under a general durable power of attorney, you give your agent/attorney broad and ongoing authority to transact all business, financial, and personal affairs on your behalf, as if you were carrying out the actions yourself. General durable powers of attorney usually provide for more effective management of financial and business affairs in the event of incapacity. As the creator of the power of attorney, you are free to select the person who will serve as your attorney/agent, and you may also customize the types of authority you grant to your agent/attorney.

If you become incapacitated without a durable power of attorney, it is likely that probate court proceedings would be necessary for the appointment of a Conservator to manage your finances. In that case, you may lose control over who is put in charge of your finances, which could lead to undesirable results, and in the worst cases, the wrongful use or distribution of your assets.

Other Estate Planning Considerations
Estate planning documents are equally, if not more important in avoiding the need for Guardianship and Conservatorship proceedings for older clients who slowly become unable to manage their own affairs as a result of the natural aging process. In these situations, individuals often do not regain the capacity to sign documents, so it is important to execute a comprehensive estate plan before the onset of significant memory issues.

It has become customary for health care proxy and power of attorney documents to be prepared simultaneously with other estate planning documents, such as a Last Will & Testament and/or Revocable Living Trust, both of which are equally important components of a well-rounded estate plan. While both wills and trusts can be used to dictate the management and distribution of assets after a person’s death, only assets held in a trust may avoid the probate court process.

Without instructions left in a Last Will & Testament or a properly-funded Revocable Trust, a person’s property may be distributed according to a default formula established by state law known as intestacy. The word “intestacy” refers to when a person dies without leaving any instructions as to how their property should be distributed. Relying on the default formula not only requires probate court supervision, but it often leads to inequitable distribution of assets, or distributions to unintended beneficiaries.

If you have questions about establishing or updating a Health Care Proxy, Durable Power of Attorney, Last Will and Testament, or any other estate planning documents, please contact the Trust and Estates Group at Prince Lobel to schedule a consultation.

The authors of this alert are Jennifer Fleming (jfleming@princelobel.com; 617-456-8058) and Thomas O’Neill (toneill@princelobel.com; 617-456-8073).

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