by Archie M. Richards, Jr., CFP^®
July 5, 2004

You want someone to care for you when you’re unable to do so yourself, don’t you? Disability can occur any time. You’ll need somebody to look out for your needs. Here are ways to prepare:

• Do nothing. This is by far the most popular method. It works fine if you have nothing. But let’s say you have some assets and receive income from a pension plan. If you become disabled, your spouse wants to provide for your needs. But she can’t get at the money. The assets are in your name, and she can’t sign on your behalf. Yikes!

  The remedy? She goes to a lawyer and undergoes the arduous and expensive task of being named by a probate judge as conservator of your estate. For the rest of your life, she must submit accountings to the judge to show that she’s doing right by you.

• Alternatively, while you’re healthy, you could give all of your assets to a capable child, with the understanding that if something happens to you, he or she will care for you. This may work unless the unexpected occurs. For example, your son undergoes a divorce. His ex-wife ends up with most of “your” money and has no intention of parting with it. Or your son himself becomes disabled. In this case, you could ask a judge to make you your son’s guardian. But you have to use the money for his benefit, not yours. If he dies without a will, the money goes to his wife and children, not to you. You’re left with nothing.

• You give your spouse or someone else you trust a power of attorney. This is appropriate, providing you don’t write the document yourself or buy a handy-dandy form at a stationery store and fill in the blanks. Go to an estate planning attorney who knows the requirements of your state. The person to whom you give the powers need not be an attorney, but the person who prepares the document should be.

  The powers granted should be broad and durable. “Durable” means that the document contains a provision which enables the powers to continue in effect after you become disabled. Without this durability clause, the powers die at the onset of your disability, the very time when you need them most.

  But powers of attorneys have a serious problem. Say you grant powers now, while you’re healthy. Several years later, you become disabled. Whoops, the powers may no longer be accepted by some of the institutions, such as your bank or brokerage firm, that hold your assets. They may want a power that was signed within the last six months. You can’t sign a new power of attorney, because you’re legally incompetent. The powers you’ve given are ineffective. The person you trust has to trudge to the probate court to be named as conservator of your estate.

• Ask an estate planning attorney to prepare a medical power of attorney (sometimes known as a healthcare proxy). This is an excellent idea. It gives someone you trust the power to decide about your medical care if you can’t decide yourself. You may not be able to think straight, but you’ll know when you’re hurting. You’ll want someone who can deal with such matters on your behalf.

• By far the best (unfortunately, the least popular) way of preparing for disability is a living trust, which should also be drafted by an experienced estate planning attorney. Once the trust is signed, you change the ownership of your assets to the name of the trust. You yourself serve as trustee, enabling you to do whatever you want with the property. But when you become disabled (no financial institution imposes a time limit), the person you’ve named as successor trustee steps in to care for your affairs. Upon your death, the property is disposed of or remains in trust, as provided by the trust instrument.

Disability can be prepared for in several ways, but a living trust and a medical power of attorney stand head and shoulders above the others.