In recognition of National Estate Planning Awareness Week (Oct. 16-22), this is a third article in a series on estate planning debacles. It describes lessons learned from not planning for incapacity.
Incapacity is defined as the inability to make reasonable decisions regarding financial and personal affairs. When incapacity occurs, it can have severe consequences for families, particularly if not planned for in advance. Often loved ones are left scrambling to pay medical bills, make health care and other important decisions. Could this estate planning mistake happen to you?
Not Planning for Incapacity
At age 45, Gwen is a widow living in Massachusetts with her two young children, Olivia and Sam. Although Gwen and her husband had talked about estate planning, in the hustle and bustle of work, kids’ activities, and daily life, the couple had never gotten around to it.
After losing her husband, Gwen decides she should get a Will in place so she can name a guardian for her kids just in case something happens to her. She goes online and gets a basic Will. She names her sister, Kate, as legal guardian for her two children.
Three years later, Gwen has a ski accident that leaves her in a coma. Gwen’s sister Kate, who lives in New York City, comes to the hospital to be with Gwen and stay with Olivia and Sam (ages 12 and 14).
Your Loved Ones are Left Unable to Pay Your Bills and Handle Your Health Care
Kate soon learns that she doesn’t have the ability to make any medical decisions regarding her sister. As a result, Kate is forced to hire an attorney to petition the Probate Court to be appointed as guardian for her sister so she can make medical decisions on her behalf.
Two weeks after the accident, Gwen comes out of the coma, but has significant medical issues. Kate decides she needs to move Gwen to a long-term health care facility but the bills have been piling up and she has no access to Gwen’s bank accounts. Kate is forced to hire the same attorney to return to Probate Court so she can be appointed as Gwen’s conservator to manage her financial affairs. The Probate process is expensive, costing thousands of dollars.
Your Kids are Potentially Left with Someone You Would Not Have Chosen
Knowing that Gwen had named her as guardian of the kids in her Will, Kate quits her job and moves into Gwen’s house to take care of Olivia and Sam. Kate again is forced to hire an attorney to file a petition for temporary guardianship of the kids in Probate Court. Little does Kate know that Gwen’s sister-in-law (the sister of Sam and Olivia’s now deceased father), had already filed a petition for temporary guardianship of the kids. A long, and expensive legal battle results.
Estate Planning Lessons Learned
In the above scenario, Gwen made a great decision to finally move forward with estate planning – something she and her husband had never got around to doing. However, Gwen could have made better planning choices.
(1) Although often a quick and inexpensive option, by executing a Will online, Gwen did not benefit from the guidance of an experienced estate planning attorney. An experienced estate planning attorney, would have taken the time to educate Gwen so that she understood that a Will was a death document only with no protection or control in the case of incapacity, and also shared additional options that would have allowed her to plan for incapacity.
(2) With a Will alone, Gwen’s wishes regarding guardianship for the children did not take effect. Gwen’s sister was forced to hire an attorney to petition for temporary guardianship in Probate Court. And unbeknownst to Gwen, she never expected her sister-in-law to file for guardianship, which led to a lengthy and costly custody battle.
Kids’ Safeguard Planning
If you are a parent of minor children, your estate planning needs to include a stand-alone Kids’ Safeguard Plan to ensure your children will always be taken care of by the people you want, in the way you want, and never put in a situation you wouldn’t like. Many parents, like Gwen, have great intentions but do not realize the limitations of a Will when it comes to planning for and protecting their children.
(3) Also by relying on a basic Will alone, when Gwen became incapacitated, her loved ones were unable to make important medical decisions or access her finances to pay for medical expenses. Instead, they were forced to repeatedly seek the services of an attorney to file the necessary petitions in Probate Court, which resulted in significant and unnecessary expenses.
If Gwen had two basic estate planning documents in place, the costly Probate process would have been avoided. These documents include a:
- Durable Power of Attorney. It enables one to designate an individual to make financial decisions on their behalf should incapacity occur – which can better protect assets and dependent heirs’ access to financial support; and
- Healthcare Proxy. It enables one to designate an individual who can make medical decisions on their behalf should they become incapacitated.
In addition, another popular estate planning tool known as a Revocable Living Trust would have enabled Gwen to plan for and mitigate incapacity concerns. It works by securing assets in a trust and appointing a trusted individual to serve as trustee should the trust owner become incapacitated.