Planning for Incapacity in Your Estate Plan

Imagine suddenly being unable to manage your own finances or make critical decisions about your healthcare. While this situation is something most of us prefer not to think about, the reality is that illness, injury, or cognitive decline could happen at any time, leaving you incapacitated. Without a proper plan in place, your loved ones could face legal battles and financial turmoil while trying to manage your affairs. Planning for incapacity in your estate plan ensures that your wishes will be respected and your interests protected if you become unable to make decisions for yourself. ​

The Role of Trusts in Incapacity Planning

One of the most common tools in estate planning for middle-sized estates is a revocable living trust. In this arrangement, you are typically the settlor (the creator of the trust), the grantor (the owner of the assets placed in the trust), and the trustee (the person who manages the trust). This structure allows you to control and manage your property while you are capable.

​However, a revocable living trust does not automatically account for the possibility of your incapacity. To address this, it is essential to name alternative trustees in your trust who can take over management of the trust if you become incapacitated. Without alternative trustees in place, your assets could be left improperly managed during a time when you are unable to oversee them.

Understanding Incapacity and Its Implications

Incapacity refers to the inability to make informed decisions about your financial, medical, or personal affairs due to cognitive or physical decline. Defining what constitutes incapacity in your estate plan while you are healthy is crucial to avoid disputes and ensure your wishes will be respected. For example, one common approach is to require that two different doctors declare you incapable of managing your affairs before any incapacity provisions in your estate plan may take effect. This step can help prevent potential legal challenges or claims that you are deficient when you are not.

Durable Power of Attorney: A Critical Tool

A Durable Power of Attorney (DPOA) is a vital component of incapacity planning. While an alternative trustee manages the assets within a trust, a Durable Power of Attorney covers a broader range of your financial affairs, including those outside the trust. In Texas, this legal document allows you to appoint someone you trust to manage your financial affairs if you become incapacitated. This can include managing bank accounts, paying bills, handling investments, and making financial decisions. ​

The statutory form of DPOA in Texas is found in Section 752.051 of the Texas Estates Code. It is a financial durable power of attorney, meaning it only allows the agent to handle financial matters, not healthcare decisions. When drafting a DPOA, it’s important to clearly define the powers you grant to your agent and to limit their ability to alter your estate plan. It’s common to appoint a spouse as your agent, but it’s also wise to consider appointing someone younger who is likely to outlive you and act in your best interest. ​

Unlike a general power of attorney, which becomes void if you are incapacitated, a DPOA will remain effective, ensuring continuous management of your affairs. However, it is important to note that all Powers of Attorney expire and the agency relationship terminates upon the death of the individual granting the Power of Attorney. At that point, the executor of your estate or the alternative trustee you’ve designated will take over.

Healthcare Power of Attorney and Living Will

Incapacity planning isn’t just about financial matters; it’s also about your healthcare. A Healthcare Power of Attorney allows you to designate someone to make medical decisions on your behalf if you are unable to do so. This person will be responsible for making decisions about your treatment, medical procedures, and end-of-life care, based on your preferences.

A Living Will, or Advance Directive, is a document that outlines your wishes regarding medical treatment in situations where you are unable to communicate. By providing clear instructions in a Living Will, you can relieve your loved ones of the burden of making difficult decisions and ensure that your healthcare preferences are followed.

It’s also essential to consider a HIPAA Authorization. This document allows your designated healthcare agent to access your medical records and communicate with your healthcare providers. Without it, even the person named in your Healthcare Power of Attorney might face barriers in obtaining the information needed to make informed decisions on your behalf. ​

The Importance of Regular Review

Incapacity planning is not a one-time task. Your life circumstances, relationships, and health may change over time, making it essential to review and update your estate plan regularly. By keeping your plan current, you can ensure that it continues to reflect your wishes and provides the necessary protections in the event of your incapacity.

Plan for the Unexpected Now ​

Planning for incapacity is a crucial part of a comprehensive estate plan. By taking proactive steps to address the possibility of incapacity, you can protect your interests, reduce the burden on your loved ones, and ensure that your wishes are honored. Whether through a revocable living trust, Durable Power of Attorney, or other legal tools, it is important to consult with an experienced estate planning attorney to create a plan tailored to your unique needs.