Prepare for Mental Incapacity in Your Estate Planning

The longer we live, the more we increase our chance for suffering dementia or other mental incapacities in our latter years. You need to decide before hand to whom you'll give the power to handle your affairs when that mental affliction happens - or even before you become increasingly unsure of your own judgment.

The person that you - the grantor - appoint can be your adult child or anyone else; but you should trust him or her implicitly. You give this power by forming a 'power of attorney' - by means of executing a document - whereby you appoint a person to act in your place. That person becomes the 'attorney-in-fact' for you and therefore will have a 'power of attorney' for you despite not being a lawyer. But, be sure you assign the 'correct' type of 'power of attorney' you want. Here are some options...

A power of attorney may be a limited power of attorney which restricts the appointed person to act in or make decisions in only one specified area of your life and finances. Or, it may be a general power of attorney entitling that appointed person to make all your decisions in all areas of your life.

It's important to note that if you grant the power of attorney to someone to take affect before you are mentally incapacitated, then under the common law it becomes ineffective when you actually become 'incapacitated'! So, if you want that power of attorney to continue when you're mentally incapacitated -and you generally do - you must form what is called a durable power of attorney.

In some jurisdictions, a durable power of attorney can also be a "Health Care Power of Attorney" or 'living will' that empowers the attorney-in-fact to make health-care decisions for you, up to and including terminating care that keeps a critically and terminally ill patient alive. New York State, however, has enacted a Health Care Proxy law that requires a separate document to be prepared appointing one as your health care agent.

In some states it's possible to grant a springing power of attorney. This power only takes effect after you become incapacitated. After that, it's identical to a durable power, but cannot be invoked before your incapacity. Use it to allow a spouse or family member to manage your affairs in case illness or injury makes you unable to act. If a springing power is used, you should specify exactly how and when the power springs into effect.

Unless you make the power of attorney irrevocable, you may revoke the power of attorney by telling the attorney-in-fact that it's now revoked. You should then notify others that the power was revoked.

Some individuals who have acquired a power of attorney unscrupulously waste or steal the assets of vulnerable individuals such as the elderly. If you're unsure of how well someone will handle your affairs, you may want to grant him power of attorney only for a while to see how he or she handles things.


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Shane Flait helps you with your financial legal, tax, and retirement goals.
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