Planning for incapacity

Articles Planning for incapacity

What is incapacity?

Legally, “incapacity” is not being able to understand information you need to know to make decisions, or not being able to understand the consequences of decisions. Incapacity can be the result of a disability, dementia or an injury. Lack of capacity can apply to dealing with property, finances and assets, and/or to healthcare, safety, housing and personal care.

Incapacity is determined by a “capacity assessor.” The determination can be complicated – many people have partial incapacity – for example, they are capable of carrying out routine day-to-day tasks, but may not understand complex financial matters or complicated healthcare requirements. And of course, capacity can change with time.

How do you plan for incapacity?

The single best way to prepare for your own incapacity is with powers of attorney (PoAs). These documents, prepared while you are still in full control of your affairs, set out how you wish things to proceed if you are no longer able to make decisions about your financial affairs or your own care in the future. PoAs are distinct from your will, which does not help you when you are incapacitated because it does not come into effect until you die; and conversely, PoAs lose effect when you pass away.

A PoA for personal care allows someone to make medical and care decisions for you when you can’t – because of dementia, for example, or because of a health crisis such as a stroke or accident.

A PoA for property allows the person you appoint to make decisions on your behalf about your property, finances and investments. Specifying that the document is a continuing PoA means it will remain valid even if you are not of sound mind – that is, it’s not temporary.

Who should you appoint?

Choosing your “attorney” is as important as – and possibly more important than – choosing your executor. If you are incapacitated, this person will decide on your behalf how your investments are handled, whether your property is held or sold, and how much is spent on your healthcare – and indeed what the extent of that care will be. This person could literally hold your life in their hands.

If you have several children who perhaps do not always get along, selecting one of them may cause increased discord and animosity at an already stressful time. Many people select their spouse. But if you do so, be sure to also appoint an alternate in case your spouse is unable to fulfil this role if the need arises. Other possibilities are a deeply trusted friend, your lawyer, or a trust company.

If you and your spouse are not legally married, and you want your spouse to have power of attorney for you, it is especially important to set this out in a legal document. Some jurisdictions and healthcare institutions may not recognize the wishes and opinions of an unmarried partner unless they have a legal PoA.

What does the power of attorney include?

Although the person you appoint can be given considerable control over you assets, finances and care, that power is not limitless. They cannot make a will for you, for example, and everything they do must be in your best interests and in accordance with your estate plans as far as they are known. So it will serve you well to make your estate plans known, in writing. For example, be clear in your PoA who the beneficiaries of your RRSPs are when they roll over to RRIFs. Financial institutions tend to want that confirmed in a PoA.

Your PoA can include provisions for the creation of a trust, which will help to reduce probate fees when you pass away – talk to your lawyer about including such terms in your PoA.

Also make clear in your PoA at what point it comes into effect. Dementia develops gradually, and you may find yourself gradually asking for more help with complex financial matters. Define in your PoA at what point you and others will know that you would prefer full substitute decision-making; that is, how will “incapacity” be defined if it has come about gradually?

Your PoA for personal care can also include a statement of your wishes for end-of-life care so that your representative knows what to do in terms of whether to implement life-sustaining measures.

Planning for your own mental decline is not a pleasant task, but it’s so important to your wellbeing and to your family’s peace of mind that it must not be ignored. Incapacity can happen suddenly, at any time. Talk to your family about your wishes and plans, and meet with you lawyer or estate planner to get started.