When most people think about estate planning, they focus on what happens after they pass away. While deciding how your assets will be distributed is certainly important, an equally important question often goes overlooked: Who will make financial and medical decisions if you're unable to make them yourself?
Advances in medicine have helped people live longer than ever before. Unfortunately, longer life expectancy also increases the likelihood that you experience a period of diminished mental capacity due to illness, injury, or cognitive decline. Incapacity planning is designed to address that possibility before it becomes a crisis.
At its core, an incapacity plan allows you to identify the people you trust to step in and act on your behalf if you're temporarily or permanently unable to do so. While the legal documents are prepared by an estate planning attorney, understanding how they work is an important part of any comprehensive financial plan.
For financial matters, one of the most important documents is the durable power of attorney. This document authorizes a trusted individual to pay bills, manage bank accounts and investments, file tax returns, and handle many other financial matters. Without one, your family may need to petition a court to appoint a guardian or conservator before anyone can legally assist with your finances. That process can be costly, time-consuming, and emotionally difficult.
A revocable living trust can provide another layer of protection. If assets are titled in a revocable trust, a successor trustee can step in and continue managing those assets without interrupting day-to-day financial management. This can simplify interactions with banks and investment custodians, which often have their own review procedures for powers of attorney before allowing an agent to act. Even so, a revocable trust does not eliminate the need for a durable power of attorney. The two documents work together, with the trust governing assets held in the trust and the power of attorney covering assets outside the trust and other personal financial matters.
Healthcare decisions also require their own planning. The healthcare power of attorney (healthcare proxy) allows you to appoint someone to make medical decisions if you cannot speak for yourself. A living will or advance directive communicates your wishes regarding life-sustaining treatment and other end-of-life care. A HIPAA authorization complements these documents by allowing designated individuals to access your medical information when needed.
Just as important as the documents themselves is selecting the right people to serve in these roles. The individuals you appoint should be trustworthy, financially responsible, and capable of making thoughtful decisions under difficult circumstances. It's also wise to review these appointments periodically, particularly after major life events or if you move to another state, since estate planning laws can vary.
At Carnegie, we do not draft or execute estate planning documents. However, we regularly work alongside estate planning attorneys to help ensure our clients' financial plans and estate plans work together. We can help identify potential gaps, review beneficiary designations and asset ownership, and discuss how your investment accounts fit into your overall estate plan.
Planning for incapacity is one of the most thoughtful gifts you can give to your family. If your estate documents have not been reviewed in several years, or if you have never established them in the first place, we encourage you to discuss them with an experienced estate planning attorney. Planning ahead can ensure that your health-care wishes will be carried out and that your finances will continue to be competently managed.
For informational purposes only. The information is not intended to provide specific advice or recommendations, and the information has been obtained from sources believed to be reliable.
Carnegie Investment Counsel (“Carnegie”) is a registered investment adviser with the Securities and Exchange Commission. Registration as an investment adviser does not imply a certain level of skill or training. For a more detailed discussion about Carnegie’s investment advisory services and fees, please view our Form ADV and Form CRS by visiting: https://adviserinfo.sec.gov/firm/summary/150488.
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