5 Legal Facts You Need to Know About Incapacity Planning
5 Legal Facts You Need to Know About Incapacity Planning Skip to content
Motley Fool Stock Advisor recommendations have an average return of 397%. For $79 (or just $1.52 per week), join more than 1 million members and don't miss their upcoming stock picks. 30 day money-back guarantee. Sign Up Now If you are like most people, you haven’t created an incapacity plan. Whatever the reason is for you not having a plan, you should have a general understanding of why these plans are so important, and why you need to make one as soon as possible. Here are the essential facts you need to know.
An incapacity plan will not lower your health care costs or protect you from injuries, but not having a plan if you’re incapacitated will typically require some significant legal expenses. If you’re hospitalized and cannot communicate or make choices, your health care providers will still need to talk to someone about your health care options and decisions. For basic decisions your doctors will consult your closest family members, such as your spouse if you’re married, your parents or siblings if you’re single, or even your children if they are old enough. But, for more important decisions, your health care providers may require someone with the legal authority to make decisions on behalf of an incapacitated person. This means that one of your family members or loved ones will have to go to court and ask the court to name a guardian or legal representative. To do this, they’ll have to hire an attorney, go to court, and perhaps wait months before a court makes a decision that will allow them to manage your affairs or make choices for you. Hiring an attorney for this process can easily cost $5,000 or more. And because your family doesn’t have access to your funds, they’ll have to pay the money on their own until they have the legal authority to use your funds to pay for the legal expense. If your family needs to file for an emergency guardianship or conservatorship, the legal fees can be much higher. Financial Costs
Besides the cost of health care, not working, and incurring damage to your vehicle, financial costs associated with not having an incapacity plan can come from unexpected sources. Let’s say you have several credit card bills that must be paid. Even if your partner knows you have bills that are due, she won’t be able to access your bank account to pay the bills because you’re not joint account holders. If your bills get paid late, or don’t get paid, this could lead to late fees or penalties. It could also negatively affect your credit score, leading to higher interest rates and fewer credit options. Similarly, failing to pay your rent, car payment, mortgage, cell phone bill, or any other obligation could lead to a range of negative consequences, ranging from car repossession to eviction and foreclosure. It’s important to note that even if you have an emergency fund in place to cover these kinds of expenses, you will not be able to access those funds. So, unless you’ve taken steps to give someone access to your accounts in the event you’re left incapable, your emergency fund is useless in this situation. Personal Relationships Apart from the legal fees and financial costs of incapacitation, there’s also the potential damage to personal relationships that you need to consider. If you’re left incapacitated, your family members and loved ones will want what is best for you. They will want to do what you would have wanted. But what is that? How do they decide what you would want if you cannot talk? How do they decide who gets to make choices? What if they cannot agree? Let’s say you and your partner talked about your wishes prior to you being in the accident. You told your partner that you wanted him to make your choices should you fall ill. But, you didn’t create any document that protected your choices. So, when it comes time to make decisions for you while you are in a coma, your partner insists that he should be your representative. Unfortunately, the law does not recognize an unmarried romantic partner’s right to make choices for an incapacitated partner. Instead, that right will likely go to your closest relative, such as your parents or siblings. Even then, someone will have to go to court, ask the court to name a guardian or conservator, and only after receiving the legal authority to make your choices can your next of kin be your representative. And this doesn’t include the potential costs of a legal battle that could erupt if someone wants to challenge the representative’s wishes or choices. So, when you recover from your injuries, you may find that not only will your financial affairs be much worse off than they could have been, but the personal relationships between your family and loved ones may be irreparably damaged.
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By Mark Theoharis Date September 14, 2021FEATURED PROMOTION
Time waits for no one. None of us can ever know with certainty what our futures hold. The idea that you might one day lose your mental faculties and be unable to make choices is not pleasant, but ignoring it doesn’t make it go away. As a capable, rational adult, creating an incapacity plan that addresses this possibility is something you cannot, and should not, avoid. Without an incapacity plan, you make it harder for your family and loved ones should the unthinkable happen to you. Incapacity planning is a process through which capable adults make choices and plans about the future. Unlike retirement or estate planning, incapacity planning addresses not an eventuality, but a possibility. Namely, it addresses what you want to happen should you lose your ability to make choices, express your choices, or otherwise lose the decision-making skills you now enjoy. A basic incapacity plan addresses three key decision-making areas: financial, personal, and health. A good plan ensures that, should something happen to you, your wishes will be protected, as well as makes sure someone will have the legal authority to represent your interests.Motley Fool Stock Advisor recommendations have an average return of 397%. For $79 (or just $1.52 per week), join more than 1 million members and don't miss their upcoming stock picks. 30 day money-back guarantee. Sign Up Now If you are like most people, you haven’t created an incapacity plan. Whatever the reason is for you not having a plan, you should have a general understanding of why these plans are so important, and why you need to make one as soon as possible. Here are the essential facts you need to know.
Fact 1 A Comprehensive Incapacity Plan Has Multiple Parts
Even the most basic incapacity plans can provide protections that you would otherwise forego. A good plan can save you and your loved ones from a variety of legal, financial, and personal problems. Every responsible adult should have at least a basic plan in place at all times. An incapacity plan is not a single document. Rather, a good plan includes a variety of tools, each of which serves a different purpose. Though the pieces you include in your plan will depend on your needs and desires, you can expect an incapacity plan to include some, or all, of the following: Living Will. A living will is a document that states what kind of health care you wish to receive, or refuse to receive, should you lose consciousness or capacity. A living will – a type of advance medical directive – only applies if you are alive but unable to make or communicate your wishes. Unlike a last will and testament, your living will has nothing to do with what happens to your property after you die.Do Not Resuscitate Order. Often included as a part of a living will, a Do Not Resuscitate order (DNR) can also be a separate document. This document states the conditions under which you refuse to accept resuscitative measures, such as cardiopulmonary respiration or CPR, that are performed after your heart stops beating or you stop breathing. Most people who choose to create a DNR are suffering from a terminal and incurable illness, or have a high risk of suffering serious complications that might arise from resuscitative measures.Health Care Power of Attorney. Another kind of advance medical directive, a health care power of attorney (also known as a health care surrogate, health care proxy, or by similar terminology), is a document that designates someone to have the legal right to make medical choices on your behalf if you cannot make them on your own. Health care powers of attorney, when paired with a detailed living will, ensure your health care wishes are protected should you lose capacity. They can be made to take effect immediately, or to take effect only after you lose capacity.HIPAA Release. A HIPAA release is a document that allows your physicians or health care providers to talk to your relatives, friends, or other people you select about otherwise confidential medical details. A HIPAA release is not the same as a health care power of attorney, as it does not name someone who will make choices for you. The release allows you to ensure that your family and loved ones can receive detailed information about your health and treatment when you are incapacitated, instead of being kept in the dark.Durable Power of Attorney for Finances. A durable power of attorney for finances allows you to choose someone who will have the legal authority to manage your financial affairs if and when you lose the ability to do so yourself. Like a health care power of attorney, the financial power of attorney can take effect immediately, or upon some later event, such as you losing capacity. Durable powers of attorney allow your chosen representative to, for example, use funds from your bank account to pay your bills when you are hospitalized or otherwise incapable.Revocable Living Trust. A revocable living trust is a common tool used in estate planning. It is primarily designed to allow property to pass from you to your inheritors without the property going through the probate process. But, you can also use your revocable living trust as an incapacity planning tool. When you create the trust you choose a trustee who will manage the property the trust owns. You typically serve as your own trustee, but, should you become incapacitated, you can also choose a successor trustee who will take over the trust management responsibilities when you’re not able to perform them. This ensures that the property the trust owns will be properly cared for should you lose capacity. Determining which tools you need to include in your plan, and what those pieces need to say, isn’t always easy to do on your own. To make sure your plan is created properly, it’s best to consult an experienced estate planning attorney. Your lawyer will guide you through the planning process and make sure that all the tools you create will be effective if and when they are needed.Fact 2 Not Making a Plan Can Be More Expensive Than Making One
The cost of making an incapacity plan differs depending on a number of factors, such as your needs, your location, and what kind of tools you choose to make. Most people make incapacity planning tools when they create an estate plan, and though the costs vary widely, you can expect to pay $500 – $2,000 or more if you hire an attorney to craft your plan for you. If you create a plan without an attorney, you can significantly reduce, and potentially eliminate, the up-front costs. But the total cost of your incapacity plan includes more than the amount you pay to create it. To measure the total cost, you’ll also have to measure the costs involved in not having a plan. To do this, it’s easiest to look at an example and compare what would happen in each situation.Example 1 You’ re involved in a car crash and do have an incapacity plan
A lot of young, healthy, and otherwise responsible people don’t feel the need to create an incapacity plan. While it’s true that most people have a low chance of losing capacity, the unthinkable can and does happen on a regular basis. Take, for example, the risk of death or injury from car crashes. The Centers for Disease Control and Prevention reports that after heart disease, cancer, and chronic respiratory disease, car crashes are the 4th leading cause of death. According to the Department of Transportation, motor vehicle crashes result in about 35,000 deaths and nearly 2.5 million injuries per year. You don’t have to be involved in a serious crash to have serious injuries, and any crash that leaves you hospitalized or incapacitated for any amount of time can have a significant effect on your life. Creating an incapacity plan does cost money, but the costs of not having a plan can be significant. So, let’s say you’re not married but are in a long-term relationship with a romantic partner. Your local estate planning attorney created a basic incapacity plan for you. The plan included powers of attorney that name your partner as your financial and health care representative, as well as a living will that states what you want to happen if you’re comatose, hospitalized, and unconscious. Creating the plan required a couple of meetings with the attorney, signing some documents, and cost about $1,500. After you’ve created the documents you keep them in a safe place your partner can access if needed, as well as leave copies with your attorney. A year later, you’re involved in a car crash that leaves you seriously injured. You have to be hospitalized and kept in a medically induced coma for several days. Because your incapacity plan names your partner as your legally appointed agent, your health care provider goes to your partner whenever there is anything to discuss about your care and treatment. Similarly, when your partner shows your bank your financial power of attorney, they have no problem allowing your partner to manage your finances and access your accounts. Further, because you made your wishes clear, your parents, siblings, and friends are in no doubt about your desires. They don’t fight over who gets to make choices and can even participate in the medical decision-making process because you gave your doctors permission to discuss confidential information with them. Though your plan makes it clear that it’s your partner’s final decision that matters, your family members and loved ones can all discuss the options together, and can all be a part of the decision-making process. Once you recover and regain capacity, you take up running your own affairs right where you left off. Your financial affairs have been protected, and your family and personal relationships are intact.Example 2 You’ re in a car crash and don’ t have an incapacity plan
Now, instead of being involved in an accident with a plan in place, let’s say that you don’t have a plan. You’re left in a coma, needing others to make choices for you and manage your affairs while you’re incapacitated, but you’ve left no legally enforceable directions or choices that others can rely upon. Here’s what can happen. Legal FeesAn incapacity plan will not lower your health care costs or protect you from injuries, but not having a plan if you’re incapacitated will typically require some significant legal expenses. If you’re hospitalized and cannot communicate or make choices, your health care providers will still need to talk to someone about your health care options and decisions. For basic decisions your doctors will consult your closest family members, such as your spouse if you’re married, your parents or siblings if you’re single, or even your children if they are old enough. But, for more important decisions, your health care providers may require someone with the legal authority to make decisions on behalf of an incapacitated person. This means that one of your family members or loved ones will have to go to court and ask the court to name a guardian or legal representative. To do this, they’ll have to hire an attorney, go to court, and perhaps wait months before a court makes a decision that will allow them to manage your affairs or make choices for you. Hiring an attorney for this process can easily cost $5,000 or more. And because your family doesn’t have access to your funds, they’ll have to pay the money on their own until they have the legal authority to use your funds to pay for the legal expense. If your family needs to file for an emergency guardianship or conservatorship, the legal fees can be much higher. Financial Costs
Besides the cost of health care, not working, and incurring damage to your vehicle, financial costs associated with not having an incapacity plan can come from unexpected sources. Let’s say you have several credit card bills that must be paid. Even if your partner knows you have bills that are due, she won’t be able to access your bank account to pay the bills because you’re not joint account holders. If your bills get paid late, or don’t get paid, this could lead to late fees or penalties. It could also negatively affect your credit score, leading to higher interest rates and fewer credit options. Similarly, failing to pay your rent, car payment, mortgage, cell phone bill, or any other obligation could lead to a range of negative consequences, ranging from car repossession to eviction and foreclosure. It’s important to note that even if you have an emergency fund in place to cover these kinds of expenses, you will not be able to access those funds. So, unless you’ve taken steps to give someone access to your accounts in the event you’re left incapable, your emergency fund is useless in this situation. Personal Relationships Apart from the legal fees and financial costs of incapacitation, there’s also the potential damage to personal relationships that you need to consider. If you’re left incapacitated, your family members and loved ones will want what is best for you. They will want to do what you would have wanted. But what is that? How do they decide what you would want if you cannot talk? How do they decide who gets to make choices? What if they cannot agree? Let’s say you and your partner talked about your wishes prior to you being in the accident. You told your partner that you wanted him to make your choices should you fall ill. But, you didn’t create any document that protected your choices. So, when it comes time to make decisions for you while you are in a coma, your partner insists that he should be your representative. Unfortunately, the law does not recognize an unmarried romantic partner’s right to make choices for an incapacitated partner. Instead, that right will likely go to your closest relative, such as your parents or siblings. Even then, someone will have to go to court, ask the court to name a guardian or conservator, and only after receiving the legal authority to make your choices can your next of kin be your representative. And this doesn’t include the potential costs of a legal battle that could erupt if someone wants to challenge the representative’s wishes or choices. So, when you recover from your injuries, you may find that not only will your financial affairs be much worse off than they could have been, but the personal relationships between your family and loved ones may be irreparably damaged.