Protect Yourself: Mental Incompetence in Estate Planning

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Estate planning is a critical process for everyone, regardless of age or wealth. It allows for control of how your assets may distribute after your passing and ensures that your plans provide security for your loved ones. However, what happens if you face mental incompetence and can’t make decisions for yourself?

The saying, “Plan for the worst, hope for the best,” applies here. Preparing legal provisions is crucial to ensure proper management of your own medical care treatment and assets in such cases. Let’s explore the importance of mental incompetence provisions in estate planning and how to maximize control over your assets even in challenging circumstances.

Disability Panels to Take Back Control

When you create an estate plan, it is an admission of your mortality. But even if you accept that you are not going to live forever, you may be slower to face the possibility that you could become incapacitated (legally incompetent) before you die. 

But who has the right to declare you mentally incompetent?

Creating a Living Trust: Cope With Possibility of Future Mental Incompetence

Should you suffer a mental disability, your competency could come into question. But who, exactly, makes this key determination about the nature of your mental competency? Who decides when you can’t make decisions for yourself anymore?

Although it can be an uncomfortable topic, incapacity is an essential but often overlooked part of drafting revocable living trusts. Placing your money and property in a living trust can accomplish many estate planning objectives, including planning for incapacity. When someone faces a mental incompetency designation, their successor trustee takes over the management of their living trust. 

But what if a doctor or judge declares you mentally incompetent without properly determining your abilities?

Naming a disability panel in your trust allows you to exert control over your incapacity plan by choosing a group of people you trust to determine if you are incapacitated. 

Older Americans Struggle with Mental Illness

Today, Americans can expect to live longer than previous generations. Living longer does not always mean living better, though. 

Older Americans are much more likely than younger Americans to have a disability, according to the Pew Research Center. About one-quarter of Americans, and roughly half of Americans over 75, report living with a disability. For 18-34 year-olds, that number is just 6 percent. However, around 13 percent of 35-64 year-olds say they have a disability. 

Disability can befall anyone at any age. However, the longer you live, the more likely you are to suffer from a mental disability. Certain disabling conditions, such as Alzheimer’s and other dementias, come with age.

Currently, more than 6 million Americans are living with Alzheimer’s. By 2050, the number of Alzheimer’s patients is projected to more than double to 13 million.

Roughly one-third of seniors die with Alzheimer’s or another form of dementia. 

How Does a Living Trust Affect When You’re Declared Mentally Incompetent?

A living trust, also known as a revocable trust, is a popular estate planning tool that allows people to avoid probate; eliminate, defer, or lower estate taxes; and distribute money and property to their beneficiaries at death. 

The grantor (trust creator) arranges for what will happen with the trust’s money and property management if they become disabled, ill, or the victim of age-related decline. 

The grantor is typically also the trustee of their living trust and handles any administration that may be required, such as recording trust income and expenses and filing tax returns.

They may also have a co-trustee, such as a spouse, who shares these duties. If there is no co-trustee, the grantor may name a successor trustee. The successor trustee will take over trust management as the new trustee when the grantor dies or becomes incapacitated.

It is possible for the grantor to name two different individuals:

  1. Successor Incapacity Trustee: Serves as trustee upon the grantor’s incapacity
  2. Successor Death Trustee: Serves as trustee upon the grantor’s death). 

A living trust allows the grantor to set out specific instructions on when they will be considered mentally incapacitated. This gives the grantor control over what the mental state of incapacitation means to them. It also helps avoid any confusion about when the responsibility of managing the trust will shift from the trustmaker to the co-trustee or successor trustee.

For example, the trustmaker could include a general definition in their trust stating that incapacity begins when they are no longer able to manage their financial affairs. Or they could rely on a more objective measure, such as the General Practitioner Assessment of Cognition screening test, which is often used to evaluate dementia patients. 

What is a Disability Panel? How Does It Determine Mental Capacity?

In addition to defining incapacity, the grantor can choose a group of people to determine incapacity. These individuals decide if the grantor meets the predetermined definition of incompetency.

The trust documents can leave incapacity decisions to a doctor or the court, or the grantor can instead name a private disability panel. 

A disability panel is a group of pre-selected people who determine if the trustmaker is incapacitated. The trustmaker selects these people ahead of time and names them in the trust. The trust should also state whether the panel’s decision must be made by a unanimous or majority vote. 

Reasons to Name a Disability Panel

A physician or court, while ostensibly qualified to weigh in on disability and mental incapacity, may not handle this task well. The grantor may prefer to name a disability panel for the following reasons:

The panel may:

  • Include the people who know the trustmaker best and can recognize when something is wrong. Family may see mental capacities as deficient when others wouldn’t know.
  • Help the grantor feel more secure. A mix of people—such as medical professionals and trusted family members make an incompetency determination.
  • Eliminate the need to pay an attorney to go to court to declare a grantor incompetent.
  • Circumvents red tape and avoids delays that can affect estate planning considerations.

Creating an estate plan is all about taking control of the future. Naming a disability panel gives the grantor control over what happens upon their death. But a panel also grants control over what happens if the grantor suffers from an incapacitating disability.

By providing for a disability panel in their trust, they will not have to rely solely on a court or a doctor to make such a personal decision. 

Getting the Details Right in Your Estate Plan

Advanced healthcare directives and powers of attorney supplement your living trust and can provide direction if you become incapacitated, but if you do not have a disability panel as part of your trust, you are overlooking an important aspect of incapacity planning. 

The people on—and the rules of—your disability panel are completely up to you. Setting these parameters while you are still competent and in control is one more way that you can make your wishes known. 

It is important to discuss the creation of a disability panel with an attorney who can help you with practical considerations, such as having a medical professional on the board to ensure stronger cooperation from financial institutions.

Remember that you can always change the terms of your revocable living trust, including the disability panel.

Our Experienced Estate Planning Legal Team Can Help

Planning for incapacity is a crucial component of any comprehensive estate plan. It’s not something that should be put off until later or ignored altogether. By working us at Vail Gardner Law, you can take the time to put the proper provisions in place, maximize your asset control over your assets, and ensure proper steps in the event that you become mentally incapacitated.

Don’t wait until it’s too late. Get in touch with us today! Start making an estate plan for your future, and rest easy knowing that you’ve taken the necessary steps to secure your legacy for generations to come.