As part of a good estate plan, most people also do an incapacity plan, so that someone else can manage their affairs if they ever become incompetent
A major component of some incapacity plans is a trust, which many people think of as simply an estate plan.
Incapacity plans and estate plans are always intertwined when done well, regardless whether there is a trust based plan or not.
Many people neglect incapacity plan component, however. And in many cases, this winds up costing many thousands of dollars (or in some cases tens of thousands of dollars) more than a well constructed integrated estate and incapacity plan would have cost.
This is because, in addition to the possible excess tax costs that can often be avoided with a well structured plan, and in addition to the costs of probate and/or bonding which also can often be avoided with a well structured plan, often there is a need to do something during life, if a person becomes incapacitated.
To some extent this can be avoided, even without a trust, if one has a well structured power of attorney. A drug store (or internet) power of attorney is seldom what one would consider a well structured power of attorney, however, at least when viewed from this perspective.
Often, for example, there is a need to sell a house after a person has become incapacitated.
Often a drug store power of attorney will work for this.
However, often it will NOT work for this.
This is because, while a power of attorney may say that “I give my attorney in fact the power to do anything I could do,” such a power of attorney does NOT actually give all such powers.
Unless a power of attorney very specifically grants the power to make a gift, it cannot be used to make a gift. Unless a power of attorney very specifically grants the power for the attorney in fact to benefit himself or herself, the attorney in fact cannot benefit.
Most drug store powers of attorney lack one or both of these powers.
This means that if there is a couple, one of whom is incapacitated, and the other of whom is the attorney in fact, the house that is jointly owned cannot be sold by the well spouse for the benefit of the well spouse.
Even if someone else, such as a child, is the attorney in fact, in such a situation, the power of attorney often cannot be used to sell the house for the benefit of the well spouse, even if the ill spouse needs to go on Medicaid.
Instead, there would often have to be a conservatorship or other protective proceeding in such a situation, just for the sale of the house, if the money from the sale is to saved to benefit the well spouse - and this can cost thousands of dollars - probably many thousands of dollars.
Another thing that cannot be done without a very well done trust or power of attorney, or a conservatorship, would be a transfer of the home to a care giving child, in a situation where the entire value of the home could be saved from Medicaid with such a transfer, but where the entire value of the home will, instead, be lost without such a transfer. For more on such care giving child transfers, please see other articles posted on this website.
To put it another way - saving $2,000 to $8,000 by not creating a well designed estate and incapacity plan can wind up, in the situation of a care giving child, costing the family the entire value of a house (which could easily be 100 times the cost of the estate and incapacity plan), or at a minimum, costing the expense of a conservatorship, which could well be considerably more than the cost of an estate and incapacity plan.
Steven A. Heinrich
Divorce & Custody
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