Planning for Incapacity: How to Avoid Living Probate

Most proactive people understand the importance of estate planning. However, they often assume an estate plan only determines what happens after death.

A comprehensive estate plan should also protect you during your lifetime. It should explain who can manage your finances, make medical decisions, and care for you if you become unable to act for yourself.

Without the proper documents, a court may need to appoint someone to make those decisions. This process is sometimes informally called “living probate.”

Planning ahead can reduce the likelihood of court involvement and help keep important decisions in the hands of people you trust.

What Does Planning for Incapacity Mean?

Planning for incapacity means deciding in advance how your personal, medical, legal, and financial affairs should be handled if you cannot manage them yourself.

Incapacity may result from:

• Dementia or Alzheimer’s disease
• A stroke
• A serious illness
• A traumatic brain injury
• An accident
• A mental health condition
• Age-related cognitive decline
• Another disability that affects decision-making

Incapacity can happen at any age. According to the Centers for Disease Control and Prevention, more than one in four adults in the United States has some type of disability.

The likelihood of disability also increases with age. The ADA National Network reports that disability affects more than 30 percent of adults ages 65 to 74 and more than half of adults age 75 and older.

Many people eventually experience physical or cognitive changes that affect their ability to manage their affairs. If no one has been legally authorized to help, the court may need to intervene.

The consequences can affect your medical care, lifestyle, finances, and family relationships.

An Example of What Can Happen Without Incapacity Planning

When Alex was in his 40s, he created a basic estate plan. His will explained who should receive his accounts and property after his death.

However, Alex did not update his plan as he aged. He also did not prepare documents authorizing someone to make financial or medical decisions during his lifetime.

In his late 70s, Alex developed Alzheimer’s disease. His family did not know who had authority to act for him or what his healthcare and financial wishes were.

Because Alex had not legally appointed anyone to manage his affairs, his family had to ask the court to appoint a guardian.

A will did not solve the problem. A will generally takes effect at death, so it did not give anyone authority to act for Alex while he was alive.

What Is “Living Probate”?

“Living probate” is an informal term used to describe a court proceeding in which a guardian or conservator is appointed for an incapacitated adult.

The terminology varies by state.

In Maryland, a court may appoint a guardian of the person or a guardian of the property. In Washington, D.C., the person responsible for personal and medical decisions is generally called a guardian, while the person responsible for financial matters is called a conservator.

The Maryland Courts describe powers of attorney, advance directives, trusts, and other arrangements as alternatives to guardianship. The District of Columbia Courts also identify powers of attorney and other less restrictive alternatives.

What Does a Guardian or Conservator Do?

A guardian or conservator is appointed by a court to make decisions for someone who cannot manage certain matters independently.

Guardian of the Person

A guardian of the person may make decisions about:

• Medical treatment
• Housing
• Personal care
• Food and clothing
• Support services
• Other daily needs

Guardian of the Property or Conservator

A guardian of the property or conservator may manage:

• Bank accounts
• Investments
• Real estate
• Bills and expenses
• Taxes
• Government benefits
• Legal and financial matters

The court may appoint one person to perform both roles or different people for each responsibility.

A court-appointed guardian or conservator is also subject to ongoing oversight. This may include inventories, accountings, reports, court approval requirements, and other restrictions.

Four Reasons to Avoid Guardianship or Conservatorship

The goal of a guardianship or conservatorship proceeding is to protect the incapacitated person. However, court intervention is not an ideal substitute for planning ahead.

1. Guardianship Can Be Expensive

Living probate can involve substantial expenses.

Those expenses may include:

• Court filing fees
• Attorney fees
• Medical evaluations
• Guardian or conservator fees
• Bond premiums
• Accounting expenses
• Ongoing court costs

These expenses are often paid from the incapacitated person’s money or property. Over time, they can reduce the funds available for that person’s care and eventual beneficiaries.

2. Guardianship Can Create Family Conflict

When a court must decide who will manage someone’s affairs, family members may disagree about who should serve.

They may also disagree about:

• Where the person should live
• What medical care should be provided
• How money should be spent
• Whether property should be sold
• How much family members should be involved

These disagreements can develop into emotional and expensive legal battles. The conflict may strain family relationships and draw attention away from the incapacitated person’s care.

3. Guardianship Can Reduce Privacy

Guardianship and conservatorship are court-supervised proceedings.

Petitions, reports, hearings, and other aspects of the case may become part of a court record. As a result, information about the person’s medical condition, finances, and family relationships may be disclosed during the proceeding.

If Alex had planned for incapacity, he might have spared his family the financial and emotional burden of a court case. He may also have been able to keep more of his medical and financial affairs private.

4. Guardianship Can Create Uncertainty

Without written instructions, family members and the court may have to guess what the incapacitated person would have wanted.

In Alex’s case, no one knew whom he trusted to manage his finances or make healthcare decisions. His wishes for medical care were also unclear.

The court will attempt to protect Alex’s interests. However, it may appoint someone Alex would not have selected.

Court supervision can also create restrictions. A guardian or conservator may need approval before completing certain transactions or making significant decisions.

How Can an Estate Plan Help Avoid Living Probate?

Several estate planning documents can reduce the likelihood that a court-appointed guardian or conservator will be needed.

No document can guarantee that court involvement will never occur. A guardianship may still become necessary if an agent is unavailable, abuses their authority, or does not have sufficient authority to address a particular problem.

However, a coordinated plan gives your family useful tools and clear evidence of your wishes.

Create a Durable Financial Power of Attorney

A durable financial power of attorney allows you to name a trusted person, called an agent, to manage financial and legal matters for you.

Depending on the powers granted, your agent may be able to:

• Pay bills
• Manage bank accounts
• Handle investments
• File tax returns
• Manage real estate
• Work with insurance companies
• Apply for government benefits
• Operate a business
• Hire professionals

The word “durable” means the agent’s authority can continue after you become incapacitated.

A financial power of attorney must be created while you still have the legal capacity to understand and sign it. Once incapacity occurs, it may be too late to create or revise the document.

The Maryland Courts explain that a power of attorney can authorize someone to manage your financial affairs if you are unable or unavailable to do so.

Create an Advance Healthcare Directive

An advance directive allows you to name someone to make medical decisions if you cannot make or communicate those decisions yourself.

In Maryland, the person named is generally called a healthcare agent.

An advance directive may address:

• Medical treatment
• Life-sustaining procedures
• Pain relief
• Artificial nutrition and hydration
• Organ donation
• Mental health treatment
• End-of-life care

The document allows you to explain your wishes instead of leaving family members to guess.

The Maryland Department of Health recommends that adults name a trusted healthcare agent who can speak for them when they cannot speak for themselves.

Copies should be provided to the healthcare agent, physicians, and other appropriate people. A document that cannot be found may not help during an emergency.

Nominate a Preferred Guardian or Conservator

A power of attorney or advance directive may also nominate the person you would want the court to appoint if guardianship or conservatorship later becomes necessary.

The judge retains authority to make the final appointment. However, a written nomination gives the court important evidence of your preference.

You should also consider naming at least one backup. Your first choice may die, become incapacitated, decline to serve, or otherwise be unavailable.

Consider a Revocable Living Trust

A revocable living trust can provide another layer of incapacity planning.

You can serve as trustee while you are able to manage the trust. If you become incapacitated, the successor trustee can take over the management of assets already titled in the trust’s name.

A trust may help manage:

• Real estate
• Investment accounts
• Business interests
• Other financial assets transferred to the trust

The trust only controls assets that are properly connected to it. A financial power of attorney is still important because some property and legal matters may remain outside the trust.

Include Long-Term Care Planning

You may never need long-term care. However, planning for that possibility can provide peace of mind.

Long-term care may include help with daily activities or ongoing medical support resulting from illness, disability, or aging.

A long-term care plan may consider:

• Preferred living arrangements
• In-home assistance
• Assisted living
• Nursing home care
• Long-term care insurance
• Medicaid eligibility
• How care will be paid for
• Protection of a spouse or dependent family member

An advance directive can also document your preferences about certain medical treatments and end-of-life care.

Long-term care and Medicaid planning should be completed carefully. Improper transfers or last-minute changes can affect eligibility and create unintended tax or financial consequences.

Choose the Right Agents

The effectiveness of an incapacity plan depends heavily on the people selected to carry it out.

An agent should be:

• Trustworthy
• Financially responsible
• Willing to serve
• Able to communicate with family and professionals
• Familiar with your values
• Available during an emergency
• Capable of keeping accurate records

The person selected for financial decisions does not have to be the same person selected for medical decisions.

One person may be excellent with money but uncomfortable making healthcare decisions. Another may understand your medical wishes but lack the skills needed to manage investments or property.

Keep Your Incapacity Documents Current

An outdated document can create nearly as much uncertainty as having no document.

Review your plan after:

• Marriage or divorce
• The death or incapacity of an agent
• A move to another state
• A significant medical diagnosis
• A change in family relationships
• The purchase or sale of a business
• A major change in assets
• A change in your long-term care wishes

Financial institutions may also hesitate to accept an older power of attorney. Periodic review can confirm that the document still reflects your wishes and current law.

Make Sure the Documents Can Be Found

Your plan will not work if no one knows it exists.

Tell your agents where the original documents are stored. Provide appropriate copies to your healthcare providers, financial advisors, and attorney.

You may also wish to keep a list of:

• Financial accounts
• Insurance policies
• Digital assets
• Professional advisors
• Important contacts
• Medication and medical information
• Instructions for accessing essential records

Do not place the only available copies somewhere your agent cannot access during an emergency.

Start Planning Before Incapacity Occurs

Avoiding the stress and expense of living probate is much easier when planning is completed before a crisis.

A comprehensive plan can help ensure that:

• People you trust make decisions for you.
• Your medical wishes are understood.
• Your finances continue to be managed.
• Your family has clear guidance.
• Court involvement is less likely.
• More of your personal and financial information remains private.

McDonald Law Firm can review your estate plan and identify documents that may need to be created or updated. We can help ensure that your plan addresses both what happens after death and how you will be protected during your lifetime.

To schedule a consultation, contact us:

• Howard County: 443-741-1088
• Montgomery County: 301-941-7809
• District of Columbia: 202-640-2133

DISCLAIMER: THE INFORMATION POSTED ON THIS BLOG IS INTENDED FOR EDUCATIONAL PURPOSES ONLY AND IS NOT INTENDED TO CONVEY LEGAL, INSURANCE, OR T