Incapacity: A Possibility You Can’t Afford to Ignore

We all wish that we could handle all of our day-to-day affairs until our deaths. Unfortunately, life often doesn’t allow that happen. Dementia, cancer, a stroke, an accident or alcohol or drug abuse can incapacitate even the most physically fit and mentally acute among us, leaving them unable to properly care for themselves or their property or to think and act rationally.

Incapacity can occur gradually or in the blink of an eye. Either way, if you fail to plan for it, the following devastating consequences could occur:

  • Incapacity may cause a serious disruption of your business.
  • It could disrupt payment of normal living expenses and cause several financial hardship.
  • It could result in a court appointing a person or entity (such as a bank) to act as your guardian, who assumes responsibility for managing some of your financial affairs. 

Fortunately, there are ways that you and your family can protect your financial well being and remain in control of your property and assets should incapacity occur.

Authorize a qualified person with a durable power of attorney

A durable power of attorney (DPOA) allows you to authorize someone else to act on your behalf. There are two types of DPOA:

  • a standby DPOA, which becomes effective immediately; and
  • a springing DPOA, which does not become effective until you have become incapacitated (note: some states don’t permit a springing DPOA).

A DPOA should be fairly simple and inexpensive to implement. It avoids court intervention. It also terminates at your death.

Establish a living trust

With a living trust, you transfer ownership of your property or assets to the trust and you name yourself as trustee. As trustee, you retain complete control over your affairs as long as you retain capacity.

If you become incapacitated, your successor trustee (the person you named to run the trust if you can't) automatically steps in and takes over the management of your trust. A living trust may survive your death and avoid court intervention, but it can be expensive to maintain and administer.

Set up a standby trust

A standby trust is a variation of a living trust. The main difference is that your property or assets don’t transfer to the trust until you become incapacitated. This may be advantageous if you don’t want your property to put in trust while you’re still able to manage it or are still living.

A standby trust survives your death and avoids court intervention, but it can be expensive to maintain and administer. And some states don’t permit a standby trust.

Since being incapacitated would prevent your from authorizing transfer of your property to a standby trust, it’s generally combined with a durable power of attorney that gives someone else this authority. 

Joint ownership

You can hold your property in concert with others. This arrangement may allow your spouse, your children or someone else to have immediate access to the property and to use it to meet your needs. Joint ownership is simple and inexpensive to implement and avoids court intervention. However, there are some potential disadvantages:

  • Your joint-owner(s) has immediate access to your property;
  • You lack the ability to direct the joint-owner(s) to spend the property for your benefit; and
  • If you die before the other joint owner(s), your property interests will pass to the other owner(s) without regard to your own intentions.

Which option(s) are right for you?

Meeting with a qualified estate planner or trust attorney can help you determine which alternative(s) may be right for you. But before your meeting, take some time to consider the following questions:

  • Is it important that your property is preserved and distributed according to your wishes?
  • Will your family need to access your property for financial support itself if you should become incapacitated?
  • Do you want to spare your family the burden of acquiring control of your property after you've become incapacitated?
  • Is there someone you trust to competently manage your financial affairs if you can't?
  • How comfortable are you with the thought of sharing control of your property?
  • Do you want the person who controls your property while you're incapacitated to maintain control after you die?
  • Do you want to avoid court intervention?

Your answers will make it easier to define the circumstances that will guide your decision-making on this complex and emotional subject.



Dan Flanagan is a financial advisor and Partner located at Canby Financial Advisors, 161 Worcester Road, Framingham, MA 01701. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 508.598.1082 or at [email protected]

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2019. Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual's personal circumstances.