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A Guide to Incapacity Planning in California - Werner Law

A Guide to Incapacity Planning in California

Troy Werner and his family

Written by Troy Werner

Troy Werner has been an indispensable asset to The Werner Law Firm since joining in 2009, providing exceptional legal service to its clients.

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POSTED ON: July 25, 2022

What happens to your financial affairs when you are incapacitated? Who makes important healthcare decisions for you when you’re unresponsive? How are your financial responsibilities, from managing payroll to paying off your debts, managed while you are in a coma? The answer, in most of these situations, is that a court decides for you, directly […]

What happens to your financial affairs when you are incapacitated? Who makes important healthcare decisions for you when you’re unresponsive? How are your financial responsibilities, from managing payroll to paying off your debts, managed while you are in a coma?

The answer, in most of these situations, is that a court decides for you, directly or indirectly (by appointing a conservator). Unless you make that decision first.

Incapacity planning involves drafting and notarizing multiple different documents that codify your decisions on important matters (such as life-saving medical procedures and extraordinary measures), as well as name specific people to represent you under certain circumstances (such as your sudden incapacity).

Your options are not limited – far from it, you have multiple different legal tools at your disposal. And each one works a little differently.

What Do I Need to Consider?

It is important to note that incapacity is not death. Wills, for example, allow a court-appointed representative to distribute your assets as per your last wishes. But wills only function after death, in the context of a probate process petitioned by a close relative or your legal representative. This means that in incapacity, even permanent incapacity, a will remains inactive.

A trust, on the other hand, can be used to move assets in incapacity. Because assets held by a trust are held “in trust” rather than by you, you have the power to use documents like trusts to work around the restrictions of a will by including instructions for the trustee to begin distributing select assets or property among your loved ones in the event of your permanent incapacity.

This way, you can rest assured that certain key assets that may require ongoing upkeep and management – from real estate to your prize-winning horses – are immediately distributed once it is determined that your incapacity is not one you can return from, and before your final death. This is just one way in which the consideration of incapacity might affect your estate plan.

A Primer on Living Trusts

When it comes to the management of key property, and the distribution of your assets in both life and death, no legal tool is as versatile or useful as the living trust. An incapacity plan in California may often include a trust, either as part of the larger estate plan, or to distribute certain key assets among your loved ones in the event of your incapacity.

As mentioned earlier, a trust can hold assets. This is because it is a legal entity, defined by the trust document. Trusts are defined and created through a grantor, whose responsibility includes funding the trust. This would be you.

Executing the functions of a trust, on the other hand, is a different job description. This is the responsibility of the managing trustee. In many cases, the grantor and the trustee can be one and the same person – which requires a secondary trustee to be named, for when the grantor dies or is incapacitated. Certain trusts require a greater degree of separation between the grantor and their assets, even in life, which may keep them from managing their own trust. These trusts may be set up a certain way for key estate tax advantages, or to protect specific assets from creditors.

Trusts are versatile in the sense that they can be written and created to do a great many things, including managing assets funded into the trust with no knowledge or consent of the grantor, in order to shield the grantor from a potential conflict of interest. Trusts can also be used to minimize the size of an estate for estate planning purposes, allowing for a faster probate process by way of an expedited small estate probate affidavit.

In the case of incapacity, a trust can be used to transfer key assets to your loved ones so they can begin managing and profiting from those assets, even before your death is official, without any interference or delays introduced by a potential probate process.

But trusts are still limited in what they can achieve. A trust cannot speak to a doctor on your behalf, for example. There are other tools for that job.

Why You May Need a Living Will

A living will, not to confused with a last will and testament (or a simple will) is a document outlining your wishes with regards to certain medical procedures. A living will, also known as an advanced directive, can be used to rule out certain procedures or lifesaving measures, or make the choice of one procedure over another.

It is a good idea to be thoroughly medically informed before you set out to create a living will. Living wills are often most useful for patients with chronic and progressive illnesses, or terminal conditions.

The Use of a Power of Attorney

Of course, we can’t account for everything. While a patient with a progressive, chronic illness can devise an incapacity plan with a fairly good idea of what their prognosis may mean for the near future, there are plenty of medical decisions that most people would have no foresight for, limiting the degree to which you can go into the specifics with advance healthcare directives, for example. You must consider who among your loved ones is impartial enough to make sound decisions in your name.

A large part of incapacity planning involves choosing who to appoint as your agent for certain decisions or aspects of your life. To that end, you can use documents like durable powers of attorney to grant a select few (or just one or two people) the ability to make important decisions as your personal representative. Powers of attorney are flexible, and can be written to last a certain amount of time, until a certain or circumstance occurs (i.e., you wake up and are mentally sound), or even last indefinitely (until you die). Agents of a durable power of attorney can make decisions on your behalf, while a regular power of attorney is limited in what it can achieve when the principal is incapacitated.

Tying It All Together

Estate and incapacity planning tools can help you prepare for the worst, including unimaginable and unforeseen circumstances. It is never a good idea to wait until it is too late. A good incapacity plan acts as an extension or prefix to a larger estate plan. The two are inseparable – incapacity can always be a potential precursor to death, and contingencies are essential for both. Where a will represents your instructions upon your death, incapacity planning must refer to what you want to have done while still alive.


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