Your estate plan should accomplish more than just creating the framework for the distribution of your estate assets after your death. In fact, a well thought out, and properly drafted, estate plan should also ensure that your assets are protected and continue to grow during your lifetime as well as make sure that those assets are used to provide for your loved ones when you are gone. Another important aspect of a comprehensive estate plan that people often forget about is incapacity planning. While it is certainly important to know what will happen to your assets in the event of your death, you should also have a plan in place for the possibility of your incapacity. One common way to plan for the possibility of your own incapacity is to create a living trust.
Why Is Planning for Incapacity So Important?
Do not make the common mistake of thinking that incapacity is an issue for the elderly only. While Alzheimer’s and other age related dementia conditions certainly do frequently cause incapacity in the elderly, you don’t have to be a senior citizen to suffer an accident or illness that causes your own incapacity. In fact, as the following facts and figures illustrate, it could happen to you tomorrow:
- Just over 1 in 4 of today’s 20-year-olds will become disabled before they retire.
- Over 37 million Americans are classified as disabled; about 12% of the total population. More than 50% of those disabled Americans are in their working years, from 18-64.
- In December of 2012, there were over 2.5 million disabled workers in their 20s, 30s, and 40s receiving SSDI benefits.
- The average healthy 35-year-old worker has a 24% chance of becoming disabled for 3 months or longer during his/her working career and has a 38% chance that the disability will last 5 years or longer, and with the average disability for someone like her lasting 82 months.
How Can a Living Trust Help with Incapacity Planning?
If you were to become incapacitated tomorrow, who would take over control of your assets? Who would make sure your bills were paid? Who would have the legal authority to access your money and investments? The answers to these questions could be left up to a judge if you failed to plan for the possibility of your own incapacity ahead of time. One way to do that is by creating a living trust.
A living trust, as the name implies, is a trust that activates during your lifetime once all of the formalities of creation are in place. If the purpose of your trust is incapacity planning, you will need to make your trust a revocable living trust so that you can easily make changes to the trust and move assets in and out of the trust as needed. You will name yourself as the Trustee of the trust and then transfer all major assets into the trust. You then need to choose a successor Trustee. This is the person to whom you wish to pass control of all trust assets in the event of your incapacity. As long as you are capable, you will manage the trust assets as the Trustee, just as you would if the assets were still yours. If you become incapacitated, the successor Trustee will take over automatically. As the Trustor (creator) of the trust, you can even define “incapacity” or create a provision that outlines how your own incapacity will be determined. By using the trust to transfer legal control of your assets to the person of your choosing, you ensure that the transition will be smooth and without the need for court intervention. It also makes it easy to transfer control back to you if your period of incapacity comes to an end.
For more information, please download our FREE estate planning worksheet. If you have questions or concerns about using a living trust for incapacity planning, or wish to get started creating one, contact an experienced estate planning attorney at the Law Offices of Kobrick & Moccia by calling 800-295-1917 to schedule your appointment.