Most people think that having a trust is about controlling (to an extent) what happens to your assets after you die.  This is true, but a trust actually has a much broader scope: a trust can also protect and provide for your loved ones—and more importantly, it can protect and provide for you—if you should ever become incapacitated.

In basic terms, incapacity means that you are no longer able to make decisions for yourself. Sometimes it is easy to determine incapacity: the person is in a coma or unconscious and obviously unable to make decisions.  But sometimes it’s more difficult.  What about whether or not a person is able to make rational decisions?  What if someone is suffering from Alzheimer’s, Dementia, or even a severe mental illness… should that person be making important financial decisions?

It is important to include a definition of incapacity in your trust, because this one word carries a lot of weight.  It is when you are incapacitated that your successor trustee will take over, when the agent nominated in your Healthcare Directive will get the authority to make health care decisions for you, and may also be the point in time when your financial Power of Attorney goes into effect.  With so much hanging on a single word, it’s important to know exactly what that word means.

Every standard trust should have a definition of incapacity,  as determined by a court of law pursuant to statutory definitions of incapacity.  This essentially means that you are deemed incapacitated when a court of competent jurisdiction determines that you are unable to legally handle your own affairs.  However, an alternative provision is also often included in trusts and companion legal documents, i.e.  upon a written determination by your treating physician(s) that you can no longer handle your financial affairs competently.  Many trusts require that this determination be made by two (2) phyicians, each providing a separate certification of incapacity.  This requirement is fine if you are really concerned about relying upon only one medical opinion.  However, in practice, we have found that there are often logistical problems in securing the written opinion of two physicians, especially if you are residing in a facility such as a nursing home.  Usually, only one physician makes the rounds there, and securing an evaluation by another phyician is often difficult and impractical.  Hence, we tend to prefer the requirement of only one (1) physcian for most plans that we prepare for seniors. 

There are many reasons why you would want to have an option in your documents that provides an alternative to the court determination of incapacity.  The primary reason is that court proceedings can be lengthy and expensive.  While your agent may be spending days or weeks going through the legal process, your estate may be languishing and your trusee or financial agent may be powerless to take action on your behalf.  Giving a licensed physician the power to determine your incapacity will likely circumvent the expense and lengthy delays often associated with the court process. Further, when we designate a physician, we generally prefer not to require that the decision be made by a specific individual, as that person may not be readily available or may no longer be your treating physician.  Our recommendation:  specify that such a decision may be made by your then current, treating physician if available and, if not, by an examing physician.