{"id":3092,"date":"2012-08-02T08:22:27","date_gmt":"2012-08-02T15:22:27","guid":{"rendered":"http:\/\/www.lichtermanlaw.com\/?p=3092"},"modified":"2012-08-04T17:09:11","modified_gmt":"2012-08-05T00:09:11","slug":"estate-planning-for-disability","status":"publish","type":"post","link":"https:\/\/www.lichtermanlaw.com\/index.php\/estate-planning-for-disability\/","title":{"rendered":"Estate Planning for Disability"},"content":{"rendered":"

Planning for the possibility of disability is probably the most overlooked part of estate planning. While many people will give serious consideration to estate planning for their death, few will seriously consider planning for their disability. Yet disability planning should be the more important part of estate planning from the client\u2019s perspective both because it benefits the client directly, and because, until a person is well past retirement age, the probability of becoming disabled in the next year exceeds the probability of dying in that period. \u00a0As a Grand Rapids, Mi estate planning attorney<\/a>, I like to phrase it as “estate planning is not just about taking care of others, it’s about taking care of yourself too!”<\/span>
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\nThe best vehicle for disability planning is a fully funded trust<\/a> – usually a revocable living trust. It’s very important to understand different ways you can design your living trusts, both to provide for taking care of the you in the event of your client\u2019s disability and to provide for anyone who is dependent on you when the disability event occurs.<\/span>
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\nIn this post\u00a0we’ll take a look at what happens when someone becomes disabled and has not planned for it, and how the right planning can prevent a court from having to step in to protect you and your assets.<\/span>
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\nDisability Planning Defined<\/strong><\/span>
\nDisability planning is planning for when you are mentally incapacitated to the degree that you are not competent to make business or personal care decisions or so physically disabled that you cannot communicate directions for the management of the your affairs.<\/span>
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\nA person is considered\u00a0incompetent<\/em>\u00a0when a medical determination has been made that the individual does not have the mental ability to make business or personal care decisions.<\/span>
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\nA person is\u00a0incapacitated<\/em>\u00a0when a court has declared the person legally incompetent to make business or personal care decisions. When a person is determined to be incapacitated, the court will take away the person\u2019s right to make personal care and business decisions and may empower someone else to do so under the court\u2019s supervision.<\/span>
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\nPlanning for disability is vitally important because disability can happen to anyone, at any age, and at any time. Many of our clients tend to think of disability as being something that only happens to old people, like when they develop dementia. However, as noted earlier, a person\u2019s probability of dying in the next year is much lower than his or her probability of becoming disabled in the next year unless the person is well past retirement age. With people living longer due to advances in medicine, their lifetime probability of becoming disabled is increasing. Today, the odds are better than 50:50 that any given person in the U.S. will have some period of incapacity.<\/span>
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\nBut younger, healthy people can suddenly become disabled from accidents or illnesses\u2014or even acts of violence. For example, Terry Schiavo was just 29 years old when she suffered a cardiac arrest that resulted in permanent, profound brain injury. The consequences of disability without planning can add another level of disaster. That is why everyone, regardless of age and wealth, need disability planning\u2014just in case.<\/span>
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\nWhat Happens if We Don\u2019t Plan: Life Probate<\/strong><\/span>
\nMost people think of probate as a legal process for changing titles on assets from the name of a deceased person to the name of the deceased person\u2019s beneficiaries or heirs. But there is another probate court process, a \u201cliving probate.\u201d<\/span>
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\nLiving probate is what happens when someone is alleged to be incompetent to manage their own affairs. Someone literally sues them in a probate court, asking the judge to take away their right to make their own care and\/or business decisions and give that right to someone else. It is an expensive process in which the alleged incompetent person pays the lawyers on both sides. If the person is found to be incompetent to manage their business affairs and there are business affairs to be managed, the court will appoint a guardian or conservator to do so. The court will require that the guardian or conservator post a bond against theft or mismanagement and provide a detailed accounting to the court on a periodic basis for the court to audit. Sometimes the responsibility for the physical care of a disabled person and the responsibility for the management of assets that are titled in the disabled person\u2019s name are given to two different people: a guardian\/conservator of the person (for physical care) and a guardian\/conservator of the person\u2019s assets (for financial care).<\/span>
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\nIf there are no assets titled in the incapacitated person\u2019s name, such as when the person\u2019s assets have been placed in a trust, the court has no need to appoint a guardian\/conservator of the incapacitated person\u2019s assets. This is just like there is no need for post-death probate if there are no assets titled in a deceased person\u2019s name that are not controlled by beneficiary designation.<\/span>
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\nBecause the courts jealously guard everyone\u2019s rights to manage their own personal affairs and property, living probate provides a form of protection that is anything but free. Living probate, especially when there are assets to be managed, can be costly, time consuming and cumbersome with annual accountings, bonds, reports, ongoing determinations of incapacity\/incompetency, and fees for attorneys, accountants, doctors and guardians. All those costs are paid from the disabled person\u2019s assets, and living probate proceedings are a public record. Once a guardianship\/conservatorship is established, it will go on until the incapacitated person dies or the court determines that he or she is no longer incapacitated. That can be many years.<\/span>
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\nAnother possible problem is that a court cannot allow an incapacitated person\u2019s resources to be used to provide care for anyone who is not the incapacitated person\u2019s legal responsibility. That means that adult children, parents, grandchildren and others for whom the disabled person was providing support will be on their own.<\/span>
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\nA Fully Funded Revocable Living Trust Avoids Living Probate<\/strong><\/span>
\nWhen a living trust is fully funded, all titles of assets are changed from the individual\u2019s name to the name of the trustee and new assets acquired are taken in the name of the trust. Then, if the client becomes disabled, there is no reason for a living probate for asset management because the client does not own any assets in his own name that need managing. While a guardian\/conservator of the person may still need to be appointed by the court, a fully funded living trust will allow the person (or people) you choose to be involved with the management of your assets under the direction of your successor trustee.<\/span>
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\nLiving Trust v. Durable Power of Attorney<\/em><\/span>
\nA durable power of attorney is not a substitute for a fully funded revocable living trust for several reasons. For example:<\/span><\/p>\n