A common approach to incapacity planning it so hold property jointly with rights of survivorship, so it automatically transfers to the co-owner upon your incapacity or passing. Image: hafakot/Shutterstock.com
By: FEDweek StaffUpdated: One tactic for dealing with potential personal incapacity—inability to make your own financial decisions—is to put some assets in joint ownership, with right of survivorship. For example, you might name a son or daughter as joint owner of your bank account so he/she can pay bills for you, handle deposits, etc.
However, there are potential problems with this approach:
* At the death of one co-owner, the survivor automatically inherits the balance of the account. That’s true no matter what it says in a will. In the above example, your designated son/daughter would inherit your bank account while any other children will be excluded.
* Joint ownership provides no protection against poor judgment. If an elderly person decides to empty a joint bank account to invest in some kind of a sham deal, there is nothing a younger co-owner can do about it. The younger co-owner similarly might spend the money improperly.
* Creditors of either co-owner may have access to the joint account.
To reduce the need for joint ownership of a bank account, arrange for automatic deposit of investment income and Social Security checks as well as automatic payment of utility bills. If some joint ownership is still desired, limit the amount kept in the account.
Following are some additional steps you can take to ensure assets and affairs are managed well in the event of incapacity – in particular avoiding probate:
Create a Revocable Living Trust – Transfer your assets into a revocable living trust and designate a successor trustee to manage them if you become incapacitated.
Establish a Durable Power of Attorney (POA) – Assign someone you trust as your financial POA to handle financial matters on your behalf.
Set Up a Health Care Proxy (Medical POA) – Designate someone to make medical decisions for you if you’re unable to do so.
Create an Advance Health Care Directive (Living Will) – Specify your medical treatment preferences in case of incapacity.
Utilize Beneficiary Designations – Ensure that assets such as life insurance policies, retirement accounts, and payable-on-death (POD) or transfer-on-death (TOD) accounts have designated beneficiaries.
Use a HIPAA Authorization Form – Grant access to medical records for designated individuals to help them make informed healthcare decisions on your behalf.
Establish a Guardianship Plan for Minor Children – Name a guardian in your will to ensure your children are cared for if you become incapacitated.
Consolidate and Organize Financial Records – Keep a list of all financial accounts, insurance policies, and legal documents in a secure but accessible place.
Regularly Update Your Plan – Review and update your estate and incapacity planning documents periodically to reflect any life changes.
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