Incapacity Planning

Planning for incapacity is a matter of critical important. The issues that must be considered and the decisions that must be made will involve difficult choices resulting in significant future consequences. The following discussion will briefly cover those matters. 

Powers of Attorney

A power of attorney is a written instrument in which one person (the "principal") gives another person (the "agent") legal authority to act in place or on behalf of the principal.  An agent may also be referred to as an "attorney-in-fact". California Probate Code Section 4022.  In order for a power of attorney to be effective, the principal must have the mental capacity at the time of signing to understand the nature of the document and the nature of the power being given to the agent. California Probate Code Section 4120.  A power of attorney must be signed and dated before a notary public or witnessed by two adults.  The agent cannot be a witness.  California Probate Code Sections 4121 & 4122.  Powers may be granted with respect to the principal's property, personal care, health care, or any other matter.  California Probate Code Section 4123.

A durable power of attorney is one that contains a statement that the power of attorney shall not be affected by subsequent incapacity of the principal, or shall become effective upon the incapacity of the principal, or similar words. California Probate Code Section 4124. Without these words, the power of attorney is non-durable and will terminate if the principal becomes incapacitated. California Probate Code Section 4155.

A durable power of attorney for finances allows an agent to manage the financial affairs of an incapacitated principal.  This document gives the agent the power to manage income and assets, pay bills, apply for benefits, provide for personal needs, and can provide the comprehensive authority needed for an agent to manage assets without having to resort to court proceedings. Since these powers can be extremely broad and sweeping, great care should be taken in choosing an agent who will faithfully and properly handle the principal's affairs.  

The durable power of attorney spells out the scope of the agent's authority, when the authority goes into effect, and for how long the agent's authority lasts. Once the document takes affect, the agent's actions have the same effect as if the principal was personally present and acting on his own behalf.  Since powers of attorney are highly individualized to suit a particular principal's specific needs and wishes, their provisions will vary considerably in complexity and length.  These documents must be carefully drafted with the advice of an attorney.  

California law provides for a Uniform Statutory Power of Attorney for financial matters. California Probate Code Section 4401.  This short form can be used either as a durable or non-durable power of attorney.  The form must be signed, dated, and notarized to be valid.

Healthcare Directives

Prior to July 1, 2000, California law authorized a document called a Durable Power of Attorney for Health Care. This document authorized an agent to make health care decisions for the principal.  Effective July 1, 2000, the law was changed to provide a new form called the Advance Health Care Directive. California Probate Code Section 4701.

The Advance Health Care Directive is a comprehensive form that has several parts: Part 1 lets you name another individual as agent to make health care decisions for you if you become incapable of making your own decisions or if you want someone else to make those decisions for you now even though you are still capable; Part 2 lets you give specific instructions about any aspect of your health care, whether or not you appoint an agent; Part 3 lets you express an intention to donate your bodily organs and tissues following death; and Part 4 lets you designate a physician to have primary responsibility for your health care. The form must be signed, dated, and signed by two qualified witnesses or acknowledged before a notary public. 

Other Asset Management Devices

A living trust, used in conjunction with a durable power of attorney, can be a useful device for incapacity asset management in appropriate cases. A living trust, however, may not, by itself, be an adequate substitute for a durable power of attorney for finances. For example, a trustee can only deal with assets that have been transferred to the trust.   

A conservatorship is a formal court process used to appoint a conservator of the person and/or property of someone who is unable to provide for his own personnel needs and/or is unable to manage his own financial resources. California Probate Code Section 1801.  This procedure may be necessary when there is no durable power of attorney in existence or where use of such power would not be a reasonable option under the circumstances.  Although conservatorships provide a high degree of protection to both the conservatee and conservator, they involve considerable expense, delays, and public disclosures that many families would prefer to avoid.

Property transferred and held in joint tenancy, such as a joint bank account, is normally not a desirable means for managing the financial affairs of an incapacitated person and can result in problems during lifetime and unintended consequences at death.