Mental incapacity and its potential impact on your estate, P.2

We’ve been looking in recent posts at the issue of mental incapacity and how people can plan to protect their estates from this possibility. Last time, we mentioned the importance of firmly establishing one’s capacity in the estate documents themselves, and on clear communication of one’s wishes and understanding of the stated property dispositions to family members.  

We also mentioned the importance of durable powers of attorney, which can be both medical and financial. A durable power of attorney for finances allows an individual to give a trusted person, an agent, power to handle the principle’s financial affairs. This is done by signing a document that establishes these powers. 

The exact powers given to an agent depend on the wishes of the principle as laid out in the document. A principle can, if he or she so chooses, give the agent the ability to manage all financial affairs. It is not possible, though, to assign an agent the power to write or modify a will. There is no requirement that a principle assign full power over his or her property to an agent. The terms are up to the principle.

As far as timing, a durable power of attorney can begin immediately, though it is certainly possible to specify that the powers only take effect when the principle becomes unable to manage his or her financial affairs. Giving an agent immediate power of attorney does not mean that the principle no longer has any right to make financial decisions. It depends on the language of the document.

A durable power of attorney document can also specify the means and criteria for determining whether the principle is incapacitated. The document can, for instance, specify a doctor to make the determination and identify what criteria the doctor will consider.

It is often recommended that separate documents are used for medical and financial powers of attorney in order to avoid unnecessary confusion about the terms of the powers of attorney. Working with an experienced attorney is an important safeguard for avoiding confusion and ensuring that everything is done properly, so that these documents will be as effective as possible. Next time, we’ll look at a third possible strategy of planning for mental incapacity.