One often overlooked part of estate planning is making plans for what will happen if you become incapable of making decisions, for whatever reason. Also known as incompetency planning, it may include the execution of a power of attorney–a document that names an agent who can sign checks, pay bills, and make other financial decisions on your behalf—and putting assets into a trust to shelter them from your incapacity.

Instead of a “regular” power of attorney, you’ll likely prefer:
* Durable powers. Such documents remain in effect if you become incapacitated.

* Springing powers. These durable powers of attorney will go into effect only if one or more doctors state that you are incompetent or that you cannot perform some “activities of daily living,” such as being able to get dressed and go to the bathroom.

Although some legal fees are involved in executing a power of attorney, those costs likely will be modest. A durable power of attorney must be notarized but there’s no need to have it recorded anywhere. You get to choose the person you want to handle your affairs in case of incapacity. A springing power won’t go into effect as long as you are competent.

However, you need to have absolute trust in the person you name as your agent. Generally, your oldest child living nearby will be the best choice. Some financial institutions won’t accept your power of attorney because they require the use of their own forms. You should send a copy of your power to each of your banks, brokers, mutual funds, etc., to see if there will be any problem. Some companies won’t recognize old powers. You should put an expiration date on the document and update it every year or two, in keeping with your current wishes.

Revocable trusts–that is, they can be cancelled–are popular for probate avoidance but they’re also valuable for incompetency planning.

* You can act as trustee and thus retain control of the trust assets. A co-trustee can be named or a successor trustee can be designated to step in if you become incompetent, as certified by more than one doctor.

* In the event of your incompetence, the backup trustee can become the primary trustee without a public court battle or private family skirmishes.

* Some banks and investment firms that balk at accepting powers of attorney willingly deal with successor trustees.

* In the trust documents you can include extensive instructions as to how you’d like the assets to be handled in case of your incapacity and how you’d like them to be distributed after your death.

* Setting up a trust means working with a capable lawyer and paying substantial legal fees. Depending on the circumstances, costs will range from several hundred to several thousand dollars.

* You have to retitle your assets from your own name to the name of the trust in order to get the benefits described above.

* Revocable trusts offer no tax advantages; if that’s your goal you need to create an irrevocable trust, a more permanent and probably more expensive vehicle.