You may be familiar with using a durable power of attorney for incapacity planning as part of your estate plan. But what if you have a family member who has an estate plan in place but who is already starting to lose capacity due to dementia, Alzheimer’s, or simply old age? With some basic steps, you can smoothly transfer management of financial, personal, and healthcare decisions without going through the painful process of declaring someone incapacitated.
Transitioning management of a Trust
Generally, a person will serve as trustee of their trust until they pass away, or are declared incompetent by two separate doctors. Only at that time will the successor trustee take control and start managing the trust property. However, management can be more easily transferred by amending the trust and making the first successor trustee a co-trustee. This way, the original trust creator can still help manage the property alongside the co-trustee and eventually leave the co-trustee to do most of the management. Another benefit to this is that the original trust creator never needs to be declared incompetent and will remain a co-trustee until their death. This simplifies tax preparation as well because a separate tax return must be filed when the creator of the trust is no longer a trustee or co-trustee.
Transitioning management of Financial, Personal, and Healthcare decisions
Similarly to the trust management succession above, most Durable Powers of Attorney and Advance Healthcare directives do not take effect until a person is deemed incapacitated by two doctors. However, if a family member is slowly losing capacity but is presently still competent, they can create an immediate durable power of attorney and/or advance healthcare directive to transition this decision making to another person. With an immediate durable power of attorney, for example, the creator can still write checks, file their taxes, etc., but their agent can also do these things on their behalf. So instead of management going from only the principal having authority to only the agent having authority there is a smooth transition where both parties have legal authority to manage the principal’s finances.
If the deteriorating capacity of a loved one is addressed early enough, you can transition management smoothly without having to resort to declaring the person incapacitated or going through the painful conservatorship process.
