Taking Control of Your Possible Disability

There may come a point in your life when you are unable to make decisions for yourself.  This inability may be temporary—such as a temporary disability after an accident—or it may be permanent, such as the inability to make decisions due to dementia.  Whatever the cause and however long the duration of the disability, a person should have in place a plan.

I always tell clients that there are three, primary estate planning documents—a last will and testament, a financial power of attorney, and an advanced health care directive.  A Will is a document that takes effect after your death, so a Will is for other people, not you.  When people are reviewing your Will to see what their next steps should be, you are already deceased.

A financial power of attorney and an advanced health care directive, on the other hand, are for you.  These are documents that permit other people to assist you if you are unable to assist yourself.

Many people believe that a spouse or their children can make decisions for them if they are unable to make decisions for themselves, but this is untrue.  For instance, assume that Mrs. Smith has a bank account with XYZ Bank.  Mrs. Smith’s son or even her husband could not go down to XYZ Bank and say, “Hello, I’m Mrs. Smith’s son.  I’d like to withdraw all the money from my mom’s account.  I promise to use the money for her benefit.  My mom suffers from dementia, so I’m helping her now”

I can assure you that the bank will not honor the son’s request.  And Mrs. Smith should be very glad that the bank will not honor this request for obvious reasons.  People should only be able to gain access to your property if you grant those people permission.

In order to access Mrs. Smith’s accounts, Mrs. Smith must name her son (or her husband) as her financial power of attorney agent.  If Mrs. Smith takes this legal step, then XYZ Bank will honor the son’s requests, assuming that the power of attorney document grants him the authority to make the request.

Similarly, if Mrs. Smith required medical care, Mrs. Smith’s son won’t be able to make medical decisions for her unless she has executed a health care directive granting her son the authority to make medical decisions for her.  The health care directive should also permit her son to access her medical information given the health care privacy laws.

But what happens when a person fails to plan for their potential disability.  This happens quite frequently.  Many people think that there is always tomorrow and that they can take care of their legal issues when they need to take care of the issues, which isn’t today.  The problem is, by the time a person needs a financial power of attorney or a health care directive, it’s typically too late for them to sign the documents because the person must be competent to sign the documents.

When a person is already incompetent and has failed to sign a power of attorney and advanced health care directive, the only option is a guardianship.  A guardianship is a legal action through which the court declares the person to be incapacitated and appoints another person, called the guardian, to make decision for the incapacitated person, called the ward.

A guardian is accountable to the court and must account to the court on an annual basis.  Unlike a financial power of attorney agent, the guardian’s ability to deal with the ward’s assets is limited.  For instance, if the guardian wants to sell the ward’s house, then the guardian must go back to court and seek the court’s permission to sell the house.

To some extent, the court’s oversight is a good thing because the guardian cannot run away with the ward’s assets.  But court oversight comes with a fairly significant financial cost.  Every time the guardian must go to court, the ward pays the legal fees associated with the court action.

When a person has trusted family members, such as a child or spouse, it is best if they put in place financial powers of attorney and health care directives.  By doing this, you are permitting your family to help you when you need their help the most.