The Importance of Delegating Medical & Financial Decisions


A thoughtful retirement income plan involves varying degrees of monitoring and oversight to ensure continued success. While this may be readily apparent at the onset of planning, many otherwise well-constructed plans fail to consider what happens if active participation is no longer possible. Planning for mental incompetency is an often overlooked component of planning that can have devastating emotional and financial consequences. Thankfully, it can be proactively addressed through proper planning.

A medical diagnosis of mental incompetency is reached if an attending physician, and a physician colleague, both determine that a patient lacks the capacity to make health care related decisions. This lack of capacity will generally also render them incapable of managing their financial affairs and would be sufficient to activate an existing power of attorney. In a legal proceeding, a judge can appoint a guardian (also known as a conservator) for an adult, only after being declared mentally incompetent by the court. This process may be quite invasive but ensures that the person’s right of due process is granted. Once so declared, a guardian is appointed by the court to handle the person’s property and personal affairs. The ward, as they are now known, may regain legal competency, often they do not, and the guardian may not be person(s) the ward would have selected had they been competent. The proceeding can have a profound personal impact on family members and loved ones and can lead to unintended decisions and needless stress. Courts will often impose very strict limitations on the role of a guardian, which may result in unnecessary expenses and delaying or eliminating certain previously agreed to financial or estate planning strategies, including planned gifts or the sale of assets.

A properly drafted estate plan can help ensure that the retirement income plan and related financial planning strategies will continue, and that appropriate safeguards are in place. Here is a sample of commonly used documents that, in addition to a will, you may consider including in your plan.

  1. A Springing Durable Power of Attorney: used to establish an agent to make financial decisions on your behalf if you are unable to do so. The power is contingent upon an event (springing) and lasts throughout the event.
  1. Health Care Directive/Living Will: details your wishes regarding end of life care and treatment. It is also referred to as an advanced directive or physician’s directive. To help ensure compliance, it is important to discuss your wishes with your family and doctors, and make them aware of the existence and location of your directives.
  1. A Durable Health Care Power of Attorney: grants authority to an agent to make health care related decisions on your behalf. It is generally advisable to select a single individual that you trust to carry out your wishes, and a continent in the event that they cannot serve.
  2. Revocable Living Trust: a trust that can be revoked or amended by the grantor and that is often used to hold title to financial assets, such as savings or investment accounts. The trust will name a trustee (often the grantor) and a continent trustee(s), which helps to ensure that someone will continue to make important decisions pertaining to asset management and income distributions if you are incapable of doing so.
  1. Irrevocable Trusts: a trust that cannot be revoked by the grantor and may be used to help ensure the continuation of wealth transfer objectives.
  1. Special Needs Trust: a trust that is established for the benefit of someone with a qualifying illness or disability. These trusts are often used to ensure that assets are earmarked for the care of a vulnerable child or grandchild, while allowing that individual to qualify for care under Medicaid.

The exact mix of documents will change based on the specific situation, and may include some not listed here. It’s important to remember to consult with an attorney specializing in trust & estates and/or elder care to ensure that the proper documents have been drafted and executed.

Many easily avoidable problems can be addressed by including incompetency planning with your financial and income plans. Having the right decision makers in place before an event can help ensure the continuation of important planning objectives, protect against elder abuse, and streamline decision making during challenging times.

John Male, CFP®
The Gassman Financial Group
G&G Planning Concepts, Inc.
The Retirement Maven ™
9 East 40th Street, Suite 1500
New York, NY 10016
Tel: 212-221-7067 Ext. 17
Fax: 585-625-0830


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