While one of the predominant functions of a will is to see to the distribution of assets post-mortem, another function is to set in place a plan to manage your finances in case you are in any sense rendered incapable of managing them yourself. As people continue to live longer, the end of life increasingly is accompanied by a period of mental or physical disability. Such disability often requires some form of fiduciary administration of the person’s property.
A revocable trust is one tool used in planning for incapacity. A revocable trust can be set up to include a trustee who can act in the place of the incapacitated settler (creator of the trust). Safeguards should be set up to assure a smooth transition of power to the assigned fiduciary so any form of litigation is avoided.
A durable power of attorney can also be used. A durable power of attorney gives authority from the creator of the relationship (the principal) to an agent to act on the principal’s behalf. Typically agent relationships end if the principal is rendered incapacitated, but a durable power of attorney is considered durable because of its ability to last through the principal’s incapacitated state and ends with the principal’s death.
A durable power of attorney may be preferable to a revocable trust because a deceased agent can simply be replaced by nomination by the principal, while a successor trustee must be appointed by a court. A durable power of attorney may fit one’s estate planning needs better than a revocable trust if you do not want to create a fiduciary relationship in your agent that will last beyond your lifetime.
However, a revocable trust may be preferable to a durable power of attorney because of third parties’ general willingness to cooperate with a trustee more than an agent. Third parties such as banks are at times reluctant to cooperate with an agent because they are not certain as to what authority the agent has to act on the principal’s behalf.
Regardless of which method you prefer, planning for incapacity is, and will increasingly be, a critical purpose of drafting a will and creating a thorough estate plan.
Image by: Marcel Oosterwijk