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Guide Main | VI. Incapacity & Estate Planning | Personal Incapacity

Personal Incapacity Planning

As I mentioned, personal incapacity planning is put in place to handle your personal affairs in the event you suffer some form of incapacitation, such as illness or hospitalization.

You'll want to think through two different areas. First, the administrative and financial aspects of your life. And second, your medical care.

Once you've thought those areas through, you'll put in place the tools to make sure those two areas of your life can be handled in the way you would like. The two tools are your disposal are formal legal documents and organizational systems.

Does this stuff not sound fun and exciting? Yah, it's not the sexiest. Especially the organizational piece. But let's talk about them a bit all the same.

Happy birthday, Wally. We miss you every day.

Part One: Life & Financial Administration

Think for a moment about all the administrative and financial tasks you take care of in the course of a given week - or month! You (more or less) effortlessly log into your financial accounts online, pay your rent or mortgage, transfer money between your accounts, pay credit card bills, submit expenses for insurance reimbursement... maybe you've even taken distributions from your investment accounts.

Then imagine that next month you're unable to take care of any of those things. What would happen? Which of those to do's need to happen in order for you and your loved ones to be adequately cared for?

Ensuring your loved ones and your future self are cared for is the heart of incapacity planning.

In order to make sure nothing falls through the cracks if you ever became incapacitated, you need to do two things. First, you need to organize and document your financial life such that whomever you appoint can step in and administer your affairs on your behalf. Second, you'll want to put a few legal document in place to make sure your loved ones have the appropriate legal authority to take those actions.

Resources for Life & Financial Administration

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+ Organization & Documentation

To get organized, you don't need any fancy tools. You simply need to watch yourself as you go through your life, and then document the actions you take and how you take them. You can do this in a simple word processing document, like Google Docs or Microsoft Word. There are also software and app-based tools, which will walk you through the process of collecting and organizing the most important information.

One of these tools which I've found useful is Everplans. It walks you through an easy-to-follow process to collect the information you'll need to memorialize. Equally important, it provides an easy way to communicate all this information to your loved ones.

Keep it Secure

Whatever documentation system you use, be sure and keep the details secure. I highly recommend encrypting whatever documentation you use. And don't lose that password!

+ Get a password manager!

Another useful tool is a password organizer.

I dragged my feet for well over a year before getting my own password manager. I really thought using the iCloud keychain on my Apple devices was good enough. And I thought the transition to a more formal password manager would be a pain. 

While there was a (fairly small) learning curve, I was pleasantly surprised at how easy a password manager was to set up and start using. And I was amazed at how useful and helpful it was. It saves everything, and it just works - on all of my devices and no matter what web browser I'm using. I feel secure and organized and efficient. And even better, if something were to happen to me, it's easy to transfer my online credentials to my loved ones.

One thing I really love about my password manager is that it stores passwords for everything, not just my online accounts. Encryption passcodes for my files with sensitive information? Yup, those are stored in my password manager as well. Credit card details? Yup, in the password manager. All I ever have to remember is my one master password and I'm good to go.

I use 1Password, but I've also heard good things about Last Pass. I chose my solution after reading The New York Time's Wirecutter article on the best password managers.

+ Communicate what you've documented

Regardless of how you document your personal administrative details, be sure and communicate the information (and location of that information) to your loved ones (or any other important people). If you use a tool like Everplans, the app will walk you through this process. If you use a word processing document, of course you'll need to arrange those communication details yourself.

I would add that a trusted financial planner can also a great partner to help hold this sensitive information!

+ Legal Authority: Durable Power of Attorney

If your loved ones have all your account credentials, in some cases they can just log in and do most of whatever needs doing (without receiving any formal legal authorization). This approach is certainly a much better solution than having no plan in place at all.

AND it is always a good idea to provide full legal authority to your loved ones through a legal document known as a Durable Power of Attorney. This document will ensure that the individuals you designate will actually be able to get what they need from the financial institutions and other companies you do business with.

For a good overview of what a Durable Power of Attorney is (and what to consider when putting one in place) see this Investopdia article. Although both medical and financial powers of attorney are covered in the article, in this section we're talking about a financial durable power of attorney. We'll talk about a medical (or healthcare) power of attorney in the next section.

+ Focus on progress not perfection!

I won't lie, this isn't a small undertaking. It can take some serious thought and organization to get this all sorted out. It doesn't need to be perfect. And don't expect to sit down and do it all in one sitting. Don't burn yourself out.

Slow and steady definitely wins the race here. And remember, even having the barest of plans sketched out is SO much better than having no plan at all. The plan doesn't need to be perfect to be a huge value. And even if you did get your incapacity plan to some mythical level of perfection, something would then change and so you'd have to update it again.

+ Schedule Reviews & Updates

Because your life is always changing, be sure and review and update this planning and documentation on some type of regular schedule. That might be once a year if your life is changing quickly (like when you have young kids for example), or once every few years might be ok if your affairs aren't changing that much.

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Part Two: Facilitating Medical Care

In the event you need urgent medical care and you're in some way incapacitated (or have reduced capacity such as with a traumatic brain injury), having a few legal documents in place can make life for you (and those close to you) so much easier. I know this from personal experience. That's a story for another day, but let's just say I really wish my friend had had some of this planning in place.

Let's bring just a bit of organization to your medical life...

An elegant view of pencils on marble.

Keeping a basic list of what's happening in your medical life is a great idea. This doesn't need to be complicated. Just a simple list which you can provide to those close to you, so they know what's up.  

Start by simply listing the basics like who your primary care physician is, what medications you're on, what pharmacy you use, what medical insurance you have (maybe include an image of your insurance card), and any medical conditions or allergies (drug or otherwise) you have. 

If you want to get more specific about drugs you would (or would not) like to receive, that's helpful information to share as well. As with all incapacity planning, a bare bones list is infinitely better than no list at all.

Let's talk legal docs for medical care (that's fun, right?)

There are three core legal documents for healthcare you should consider putting in place. 

The three key documents are a Medical Power of Attorney, an Advanced Directive and a HIPAA Authorization. 

Depending on what state you live in, you may have three separate documents or just a single document. And the precise names of those documents will vary. But every set of state laws allows the same types of provisions. 

Yes, drafting legal documents that are effective and compliant with local law can be tricky. That's why it often makes most sense to work with local attorney expert in estate planning law. For resources for finding good legal counsel, check out the 'Resources for Drafting Legal Documents' section on the main Incapacity & Estate Planning Page.

Details on the Three Key Legal Provisions for Medical Care

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+ Durable Medical Power of Attorney

The medical power of attorney provisions empower someone you trust to make medical decisions on your behalf. This legal document is analogous to the financial power of attorney, but much more personal since it deals with your physical health.

Almost always, this type of power of attorney is created in "springing" form. Springing means that your designated agent has no power to make decisions for you until you become incapacitated. 

As you advance in age, you may decide to remove this springing provision. The reason is that proving incapacity takes time and requires overcoming a high burden of proof. That makes sense when you're young and healthy. But as you age, you may prioritize the ability for your loved ones to step in quickly to make decisions for you if you've become cognitively impaired. In that case, it makes sense to remove the springing provision.

This articles provides some additional detail on the medical power of attorney. It may also be called a healthcare power of attorney, as it is in this article. The exact name used will vary depending on the state you live in.

+ Advance Directive

An advance directive provision is a set of instructions that you write and communicate directly to your healthcare providers. Obviously (and as the name implies), you've made this decision in advance. 

Unlike the medical power of attorney (where someone else is making medical decisions for you) through an advance directive you are making those decisions for yourself - in advance. Advance directive provisions cover a limited set of circumstances, such as removal of life support or a 'do no resuscitate' order.

Because an advance directive contains your instructions, in virtually all circumstances your medical power of attorney can NOT overrule the instructions in the directive. So be sure you're confident about these instructions! Especially when you're younger, you may opt to include no advance directives at all. This is the approach I've taken for myself: I've decided to allow my healthcare agent to make all decisions for me if I'm incapacitated.

+ HIPAA Authorization Form

Finally, the HIPAA authorization form allows designated persons to gain access to your Protected Health Information. Without this authorization, medical staff will be severely limited in what they can (or will) share with anyone other than you. 

And if you have a head injury, or are on strong pain meds, you really want someone clear-headed to be able to hear, process, take notes and communicate with other loved ones. Again, I've had some personal experience here and not having this authorization made trying to pass along any information to my friend's family members (living on the other side of the country) virtually impossible.

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Let's return to the main Incapacity & Estate Planning Page

Standard Not Advice Disclaimer

Just a friendly reminder that none of the information included anywhere in this guide is financial, legal or accounting advice. I don't know the specific financial circumstances of your life (or your private practice), so there's no way I can make blanket statements about what's right for you.

What I offer in this Guide is a suggestion on how you might think things through and then decide (for yourself) what's right. 

For some topics, I've also included what I've learned works well for most people. But you're not most people, you're you. You might be in that minority where the general suggestions are the wrong approach. 

Take everything said here (and anywhere else online) with a grain of salt, and seek out professional advice if you suspect you need it. Of course, I'm always happy to have a no cost introductory conversation with you to see if I can help.

I know this sounds like a legal CYA (that's cover your ass) statement. And yah, it is that. AND it's also an extension of loving kindness to you, the reader.

The way I cover my ass here is by making sure I don't encourage you to do anything that ends up causing you harm. I don't want that for you, and you don't want that for you. Take your time, think things through, be deliberate and seek out professional advice if you suspect you need it.