There are various legal mechanisms which can assist in the management of assets and health care when a person becomes incapacitated. Below we discuss three of them, Durable Power of Attorney, Durable Power of Attorney for Health Care, and Revocable Living Trusts. For additional information, also see Fact Sheets on Legal Planning for Incapacity and Conservatorships These matters can be complex and confusing; be sure to consult an attorney knowledgeable in this specific area of the law for assistance in making decisions about legal planning.

Durable Power of Attorney

Q: What is a Durable Power of Attorney for Asset Management (DPA)?

A Durable Power of Attorney (DPA) is a document which allows you (the principal) to give authority to another person (your agent or attorney-in-fact) to make financial/legal decisions and to make financial transactions on your behalf. A "Durable Power" differs from a "general" power of attorney because it remains effective even if the principal is mentally incompetent.

Q: Who can execute a Durable Power of Attorney?

A person must be competent in order to execute a valid DPA. If there is a question regarding competency, it is a good idea to get a doctor's letter or declaration regarding the competency of the principal at the time the document is executed.

Q: Who can serve as attorney-in-fact?

Any trusted person, such as a spouse, relative or friend, can serve as attorney-in-fact; it need not be an attorney. Also, there are several non-profit agencies which will fill this role. It is always a good idea to name at least one alternate attorney-in-fact to serve in the event that the first choice becomes disabled or dies. Your attorney- in-fact will have broad authority and it is critical that the person that you chose to serve in this capacity be completely trustworthy and sensitive to your wishes.

Q: What powers can I give to my attorney-in-fact?

You can give your attorney-in-fact as limited or as broad powers as you desire, including the powers to buy property, to invest, to contract, to engage in tax planning, to make gifts, and, very importantly, the power to plan for government benefits, such as SSI.

Q: What is a springing Durable Power of attorney?

Ordinarily, a DPA is effective as of the day it is signed and executed. This means that even if you are competent to make your own decisions, your attorney-in-fact will also have the legal authority to act on your behalf and engage in financial transactions.

A "springing power of attorney," on the other hand, becomes effective at a later date, usually when the principal becomes mentally incompetent--it "springs" into effect at the point you lose capacity, as certified by a physician, or other designated individual.

Q: What are the advantages of a Durable Power of Attorney?

A DPA is a relatively easy, inexpensive mechanism for allowing another person to handle your legal and financial affairs. Unlike a joint tenancy bank account, which is often used by people as a management device in the event of incapacity, a Durable Power of Attorney does not give your attorney-in-fact legal access for his or her own use. Your attorney-in-fact must use your assets for your benefit.

Also unlike joint bank accounts, a Durable Power of Attorney allows for surrogate decision-making without disrupting your estate plan. When you create a joint tenancy bank account, you not only give your "joint tenant" access to your funds, but on your death, all of the funds in that account will automatically go to the joint tenant, by right of survivorship. Assets in a joint tenancy account are not subject to your Will.

A Durable Power of Attorney, on the other hand, in no way affects the disposition of your assets upon your death and in fact, ceases to be effective when the principal dies.

A properly-drafted DPA can give you the flexibility to plan for government benefits. For example, the attorney-in-fact can be given authority to transfer the principal residence to your spouse if you needed to be in a nursing home or required government assistance.

Q: What are the disadvantages of a Durable Power of Attorney?

The main disadvantage of a DPA is that it is subject to abuse because there is no ongoing court supervision of the attorney-in-fact. Unlike conservatorships, where an accounting is required to be submitted to the court, the attorney-in-fact's actions are not being supervised on an ongoing basis. If the attorney-in-fact abuses his or her authority and acts improperly, a court can step in and take action. However, in many cases the damage is already done and it is difficult to undo it. Thus, great care should be taken in selecting your attorney-in-fact.

Q: Do I need a lawyer to have a Durable Power of Attorney drafted?

There are advantages in having a lawyer draft a DPA. First, an attorney-drafted DPA can be drafted to meet your individual needs. Although there are pre-printed forms available, they are worded broadly and do not give you as much flexibility. Second, since DPAs are subject to abuse, it is a good idea to meet with an attorney to make sure both the principal and attorney-in-fact understand the document and the attorney is assured of the principal's competency.

Durable Power of Attorney for Health Care

Q: What is a Durable Power of Attorney for Health Care?

A document by which you select another person (your agent or attorney-in-fact) to make health care decisions for you. It remains in effect indefinitely. For those who have executed the document before January 1, 1992, the DPAHC must be renewed after seven years, unless the principal is no longer competent when the seven-year period expires and the DPAHC remains in effect.

Q: What if I am competent to make my own health care decisions?

You have the right to make your own health care decisions even if you have executed a DPAHC. The DPAHC is effective only if you are not competent to make your own health care decisions.

Q: What powers can I give my attorney-in-fact?

The powers which you can give to your agent pursuant to a DPAHC include:

The right to refuse or consent to treatment; The right to access medical records; The right to withdraw life sustaining treatment; and The power to make anatomical gifts.

Revocable Living Trust

Q: What is a Revocable Living Trust?

A living trust is an arrangement in which a person transfers ownership of their assets from themselves to another entity, the trust. The person creating the trust is the settlor. The person who manages the trust is called the trustee. The person for whose benefit the trust is being managed is called the beneficiary. The same person can be settlor, trustee, and beneficiary.

Thus, you can set up a trust with your own assets and retain complete management and control of the assets by acting as your own trustee, or you can designate someone else as trustee to manage the assets for you.

It is called a "living trust" because it is created during the settlor's lifetime. This is different from a "testamentary trust" which is created upon the death of the settlor.

Q: How does a living trust function as a management device if I am incapacitated?

In the event that you are incapacitated, the trust can provide for an alternate trustee, whom you have selected, who will manage the trust funds for you. The trust document should spell out how the determination of incapacity is made.

Q: How does a living trust serve as a substitute for a Will?

The trust document provides for the distribution of the settlor's assets upon the settlor's death. Thus, on the death of the settlor, the trust assets are distributed by the trustee directly to the beneficiaries who are designated in the trust instrument. There is no automatic court supervision or probate of this distribution process as there is in a Will. This is generally less costly and faster than the distribution of assets pursuant to a Will.

In order for a living trust to function as a Will substitute and avoid probate, the settlor's assets must be transferred into the living trust during the settlor's lifetime.

Q: Does a living trust save taxes?

The same tax planning strategies can be utilized in a Will as well as a living trust. The use of a living trust does not in of itself save taxes, but a living trust may be one vehicle for doing tax planning.

Q: Who can serve as a trustee of a living trust?

A trustee can be an individual, such as a family member or friend, or it can be a bank or other financial institution. If you choose an individual to serve as trustee, you want to make sure that he or she is obviously trustworthy, and is able to manage your assets. Some people prefer a neutral third party, such as a bank or trust company. These institutions do charge fees, usually based on a percentage of the trust estate, and you may want to interview several trust companies before you choose one.

Q: Is a living trust right for everyone?

For many people, a living trust is an ideal arrangement both for management of assets and as a Will substitute. However, it is not right for everyone. Under a living trust, the trustee who manages the assets has an obligation to use trust assets only for the beneficiary's benefit, but there is no ongoing court supervision of the trustee. Thus, there is less protection in case of mismanagement of assets than there is in a conservatorship.

Also, a living trust is more costly to have drafted than a Will. These are costs that a person pays during their lifetime, as opposed to probate costs, which are paid after a person's death by his or her heirs. Further, in order for a living trust to function effectively, it must be fully funded. That entails, in some cases, considerable effort on behalf of the settlor in terms of transferring assets into the trust.

Q: If I have a living trust do I need a Will?

Although a living trust functions as a Will substitute, it is necessary even with a living trust to have a "pour-over" Will. A pour- over Will makes sure that any assets that were not transferred into the trust during the settlor's lifetime are poured over into the trust on the settlor's death. If all of the settlor's assets have been transferred into the trust during the settlor's lifetime, the pour-over Will will never be used and will never have to be admitted into probate.

Q: If I have a living trust do I still need a Durable Power of Attorney for Asset Management?

It is usually advisable to have a DPA for Asset Management in addition to the living trust. This is because there are some decisions that have to be made on your behalf which do not come within the powers of a trustee.

Q: If I have a living trust do I still need a Durable Power of Attorney for Health Care?

Yes. A trustee under a living trust does not have the authority to make medical decisionson behalf of the settlor. A trustee can use trust assets to pay for medical care, but they cannot make medical decisions.