Many people are planners. Whether saving for a down payment on a house or making sure we have all the ingredients we need to make our lunch, it’s in our nature to try to make things happen and control the outcome.
But, despite our best-laid plans, we simply can’t predict everything that might keep us from realizing our priorities or even meeting our needs. If, for example, you were in an accident that left you mentally or physically incapacitated, you might not be able to serve an active role in your own affairs. In fact, the Centers for Disease Control estimates that nearly 11% of adults have cognition impairment that involves serious difficulty concentrating, remembering, or making decisions.
This can make it difficult to pay bills, write checks, make deposits, sell assets, or manage other aspects of your financial life. The strain can exhaust your savings and undermine your estate planning strategies.
No one can predict when they might suffer a serious illness or injury. But planning what to do should the worst occur can help protect you from further challenges.
How Is Incapacity Determined?
Incapacity is typically determined in one of two ways: by a physician certification or a judicial finding. A physician certification can be requested through a provision in your durable power of attorney document, which either designates one or more specific physicians to make a determination or allows the attending physician to do so at the relevant time.
In the case of a judicial finding, medical and other relevant testimony is presented to a judge who makes a determination based on the applicable laws of the state.
Advance Medical Directives
To formalize your plans in the event that you become incapacitated, you’ll have to prepare legal documents outlining your wishes. Without them, medical providers are obligated to prolong your life for as long as possible — whether that is days or years. If you wish to avoid this, you need an advance directive.
Research published in Health Affairs magazine shows that only about one-third of American adults have some type of advance directive. That leaves two-thirds of American adults who haven’t completed any advance care planning in the event they might become incapacitated.
There are three types of advance directives:
- Living will
- Durable power of attorney (DPOA) for health care
- Do not resuscitate (DNR) order
There are benefits and drawbacks for each of these options, and some people find it necessary to utilize more than one — or even all three. Here’s what you need to know about your options.
Documenting Your Wishes in a Living Will
A living will allows you to approve or decline certain types of medical care, even if you will die as a result of the choice. This ensures that your wishes are fulfilled while relieving others of the burden of using their own judgment to make the call.
Generally speaking, living wills are only used to decline medical treatment that “serves only to postpone the moment of death.” In most states, they take effect only under certain circumstances, such as terminal injury or illness — and state laws have specific requirements to recognize living wills. It’s best to work with an experienced professional to draft a living will to make sure you’re complying with your state’s regulations.
If a living will isn’t valid in your state, that doesn’t mean it’s irrelevant. Even if it’s not legally binding, it can still serve as an expression of your wishes, and that is valuable information for your family and medical team to have on hand in case you become incapacitated.
Durable Power of Attorney (DPOA) for Health Care
A durable power of attorney for health care (known as a “health care proxy” in some states) or durable medical power of attorney, allows you to appoint a representative to make medical decisions on your behalf. Power of attorney comes in two types. An immediate DPOA is effective immediately after designation, and a springing DPOA activates only once you have become incapacitated. Both of these end upon your death.
DPOAs are generally straightforward and inexpensive, and they are also relatively flexible. Your representative is largely able to make any medical decision that you would have to make, but you can decide how much or little power your representative will have, and those powers can be adaptable to specific circumstances.
However, because your representative must be present to exercise their power of attorney, DPOAs are not practical in an emergency situation. A springing DPOA is also not permitted in some states.
The Limits of a Do Not Resuscitate (DNR) Order
A DNR is a doctor’s order that tells all other medical personnel not to perform cardiopulmonary resuscitation (CPR) on you if you go into cardiac arrest. There are two types of DNRs. One is effective only while you are hospitalized; the other is used while you are outside the hospital.
The primary advantage of a DNR is that they are effective in an emergency. Within a medical environment, the DNR order will appear on your medical chart, indicating your wishes to your doctor. Out-of-hospital DNR orders take various forms depending on the laws of your state. Identification bracelets, MedicAlert® necklaces, and wallet cards are just a few methods for indicating your DNR status and wishes.
A DNR applies only for the purposes of declining CPR in the event of cardiac or respiratory arrest. Furthermore, some states limit DNR orders to only hospitalized patients, and others do not allow them at all.
Planning For Your Property and Assets
We’ve covered each of your options for advance medical directives, but what about your financial directives? Without someone to look after your affairs during your incapacitation, your property could be wasted, abused, or lost.
To protect against these possibilities, consider putting in place a revocable living trust, durable power of attorney (DPOA), or joint ownership arrangement. As with advance directives, you might find that a combination of strategies is the most appropriate for your situation.
Forming a Revocable Living Trust
By establishing a revocable living trust and naming yourself as the trustee, you can transfer ownership of your property to the trust. There are costs and other difficulties associated with creating and maintaining a trust, but it does allow you to retain complete control over your affairs.
By naming a successor trustee, you will be able to designate someone to manage the trust — and all its assets — in the event of incapacitation or death. In this way, a living trust can help ensure that your financial wishes survive your death.
Setting Up Joint Ownership
Joint ownership is simple and inexpensive to implement. By sharing ownership of a property, you allow someone else to have immediate access to that property and to use it to meet your needs if you are unable to do so for yourself. This can work well when you are aligned with your partner on how the property should be used. But there are some drawbacks that call for consideration.
For starters, you and your partner might not be aligned about how the property should be used. Additionally:
- Your co-owner always has immediate access to your property, regardless of whether or not you are incapacitated.
- Naming someone who is not your spouse as co-owner may trigger gift tax consequences.
- If you die before the other joint owner, your property interests will pass to the other owner, which may not be your preference.
A joint ownership arrangement is not for everyone, but it can work well between people who share the same goals.
Hope for the Best, Plan for Reality
Hopefully you will never need an advance medical directive or become incapacitated for any amount of time. However, it’s a good idea to prepare and plan anyway. Planning for incapacity can significantly positively impact yourself, your family, and your estate, which can be a comfort in stressful times.