Currently over 37 million Americans are classified as disabled, statistically the average American worker has a 1 in 4 chance of becoming disabled during their career.[1] Nearly everyone can benefit from the creation of a basic disability plan. A basic disability plan should allow your chosen representative to make financial and medical decisions on your behalf if you are incapable of doing so. It is a position of extreme power and you should consider many factors when choosing your representative.

The basic building blocks of disability planning typically involve the signing of a power of attorney, health care proxy and living will, each of which is described below.  The execution requirements with respect to each of these documents is governed by state law.  It is best to consult with an estate planning or elder law attorney to ensure that your documents are up to date and in compliance with current state law.

Power of Attorney (POA)

A POA is a legal document that grants another individual – your “Agent” – the authority to act on your behalf during your life.  That authority is generally granted to the Agent the moment you sign the POA, not just when you become incapacitated.  The POA will grant the agent a broad range of powers, including the ability to act on your behalf with respect to financial and real estate matters.  A POA can grant your Agent the power to pay your bills, withdraw funds, open and close accounts, purchase and sell real estate, and even make gifts on your behalf.

Under a “durable” POA, the Agent’s authority to act on your behalf continues even if you become incapacitated.  This feature can make the POA a useful vehicle for disability planning.  A durable POA allows your Agent to manage your affairs during a period of disability without having to seek court approval for guardianship.

A POA can also be useful outside of the disability context.  Each state has adopted its own statutory POA form that allows individuals to choose what level of authority they wish to grant their Agent. A POA can be limited or transaction specific, i.e. – you give someone the authority to act on your behalf to complete a real estate purchase, or incredibly broad, i.e. – you grant your Agent the authority to complete any transaction you can yourself.

Your Agent is bound by a fiduciary duty of care, meaning that all transactions he or she executes on your behalf must be in your best interests. All POAs, either durable or not, become invalid following the death of the principal.

Health Care Proxy (HCP)

An HCP, sometimes referred to as a Durable Power of Attorney for Health Care or a Medical Power of Attorney, allows you to name an individual to make medical decisions on your behalf in the event you cannot speak for yourself.  The HCP and the POA are very different, so it is important to consider both when creating your disability planning documents. The HCP is different from the POA in two main ways.  First, the HCP is only effective if you are incapacitated.  So long as you are not incapacitated, you make your own health care decisions.  Second, the HCP only governs health-related decisions.

It is important that your HCP conforms to all applicable HIPPA requirements. Your HCP Agent does not need to be the same person as your POA Agent. Generally, when choosing an HCP Agent you want someone who you trust and who you know will honor your wishes.  Being a HCP Agent can be incredibly difficult, especially if you have determined that you do not want heroic or life-sustaining treatments in the event that you become terminally ill. The medical professionals providing your care will need to get an affirmative response from your HCP Agent to stop providing care. This can be an extremely emotional experience, and your choice of a HCP Agent should reflect this reality.  If you do not appoint a HCP Agent, the individual who will be given authority to make medical decisions on your behalf will be determined by the laws of your particular state.

Living Will

A Living Will, sometimes called a Health Care Directive or an Advance Directive, is a legal document that expresses your wishes for end-of-life medical care. A Living Will provides specific written instructions regarding health care decisions, and can act as a road map for your HCP Agent when making decisions on your behalf.  The most beneficial aspect of a Living Will is that it gives you a framework to think about what you would like to happen if you are terminally ill and convey those wishes to your HCP Agent.

Conclusion

These documents represent the bare minimum when creating a robust disability plan. Further techniques, such as the establishment of a Revocable Trust with a Successor or Co-Trustee, can add additional flexibility should you become disabled. While the subject matter may not be fun to think about, it is of vital importance to every individual to formulate a disability plan, and to periodically review it.

“Hope for the best and prepare for the worst.”

 

 

[1] Disability Statistics, http://www.disabilitycanhappen.org/overview.

Wealthspire Advisors is the common brand and trade name used by Sontag Advisory LLC and Wealthspire Advisors, LP, separate registered investment advisers and subsidiary companies of NFP Corp.
This information should not be construed as a recommendation, offer to sell, or solicitation of an offer to buy a particular security or investment strategy. The commentary provided is for informational purposes only and should not be relied upon for accounting, legal, or tax advice. While the information is deemed reliable, Wealthspire Advisors, LP cannot guarantee its accuracy, completeness, or suitability for any purpose, and makes no warranties with regard to the results to be obtained from its use. © 2019 Wealthspire Advisors

Eric Dostal, J.D., CFP®

Eric is a wealth advisor in our New York City office.