When you create an estate plan, it is an admission of your mortality. But even if you accept that you are not going to live forever, you may be slower to face the possibility that you could become incapacitated before you die. Although it can be an uncomfortable topic, incapacity is an essential but often overlooked part of drafting an estate plan, including revocable living trusts. Placing your money and property in a living trust can accomplish many estate planning objectives, including planning for incapacity. Should you be incapacitated, your mental competency could come into question. At that point, it will need to be determined if a backup trustee should take over the management of your living trust. Deciding who will make this key determination is very important. One of the options available is disability panel, where you name people close to you (such as family and friends) who are familiar with you to make that determination. Naming a disability panel in your trust allows you to exert control over your incapacity plan by choosing a group of people you trust.
Disability Is Common Among Older Americans
Today, Americans can expect to live longer than previous generations. Living longer does not always mean living better, though. Older Americans are much more likely than younger Americans to have a disability, according to the Pew Research Center.[1] About one-quarter of Americans, and roughly half of Americans over age seventy-five, report living with a disability. For eighteen- to thirty-four-year-olds, that number is just 6 percent. Around 13 percent of thirty-five- to sixty-four-year-olds say they have a disability.
Disability and incapacity can befall anyone at any age. However, the longer you live, the more likely you are to suffer from a disability or a lack of capacity, and certain disabling conditions such as Alzheimer’s are age-related. Currently, more than 6 million Americans are living with Alzheimer’s. By 2050, the number of Alzheimer’s patients is projected to more than double to 13 million.[2] Roughly one-third of seniors die with Alzheimer’s or another form of dementia.
Living Trusts and Disability Panels
A living trust, also known as a revocable trust, is a popular estate planning tool that allows people to avoid probate; eliminate, defer, or lower estate taxes; and distribute money and property to their beneficiaries at death. Another major benefit of living trusts is that they help the grantor (i.e., the trustmaker, trustor, or settlor) arrange for the management of the trust’s money and property should they become disabled, ill, incapacitated, or the victim of age-related decline.
The grantor is typically also the trustee of their living trust and handles any administration that may be required, such as recording trust income and expenses and filing tax returns. There may be a co-trustee (e.g., a spouse) who shares these duties. If there is no co-trustee who can continue to manage the property held by the trust, a successor trustee named in the trust document should take over as trustee when the grantor dies or becomes incapacitated. It is possible for the grantor to name two different individuals to serve as the successor incapacity trustee (upon the grantor’s incapacity) and successor death trustee (upon the grantor’s death).
Within a living trust, a grantor can define when they are deemed to be incapacitated so there are no doubts about when trusteeship passes from the grantor as trustee to the remaining co-trustee or successor trustee. For example, the grantor could include a general definition in their trust stating that incapacity begins when they are no longer able to manage their financial affairs; or they could rely on a more objective measure, such as the General Practitioner Assessment of Cognition screening test, which is often used to evaluate dementia patients.
In addition to defining incapacity, the grantor can choose a group of people to determine if the definition has been met. The trust documents can leave this decision to a doctor or the court, or the grantor can instead name a private disability panel. A disability panel is a group of pre-selected people, usually family, friends and loved ones, who determine if the grantor is incapacitated. The grantor selects these people ahead of time and names them in the trust. The trust should also state whether the panel’s decision must be made by a unanimous or majority vote.
Reasons to Name a Disability Panel
A physician or court, while ostensibly qualified to weigh in on disability, may not be best suited to the task. The grantor may prefer to name a disability panel because
- it can include the people who know the grantor best and can recognize when something is wrong,
- they may feel more secure with a mix of people—such as medical professionals and trusted family members—making the determination,
- it eliminates the need to pay an attorney to go to court to have the grantor declared incapacitated, and
- it circumvents red tape and avoids delays that can affect estate planning considerations.
Creating an estate plan is all about taking control of the future. Naming a disability panel gives the grantor control over not only what happens upon their death, but also what happens if they suffer from an incapacitating disability. By providing for a disability panel in their trust, they will not have to rely solely on a court or a doctor to make such a personal decision.
Things to Consider When Naming a Disability Panel
Family and friends are often the best positioned to determine is a grantor is beginning to show signs of incapacity. It is important to remember, however, these are the people who may have the biggest blind spot about capacity when it comes to their family member or friend. Incapacity is not a binary state, and the early signs can be difficult to miss by people who want to believe their loved one is healthy and fine. Having conversations with disability panel members about their health, health choices. Considering the delicate nature of this topic, resources such as the Conversation Project[3] are available for anyone thinking about aging, incapacity, or their estate plans.
Getting the Details Right in Your Estate Plan
Advanced healthcare directives and powers of attorney supplement your living trust and can provide direction if you become incapacitated, but if you do not have a disability panel as part of your trust, you are overlooking an important aspect of incapacity planning. The people on—and the rules of—your disability panel are completely up to you. Setting these parameters while you are still competent and in control is one more way that you can make your wishes known.
It is important to discuss the creation of a disability panel with an attorney who can help you with practical considerations, such as having a medical professional on the board to assure stronger cooperation from financial institutions. Remember that you can always change the terms of your revocable living trust, including the disability panel. Nielsen Law PLLC provides family focused estate planning in the Austin, Round Rock, Cedar Park, and the Central Texas area. For more information and to learn about our firm, please contact us. We look forward to hearing from you.
[1] Kristen Bialik, 7 facts about Americans with disabilities, Pew Research Ctr. (July 7, 2017), https://www.pewresearch.org/fact-tank/2017/07/27/7-facts-about-americans-with-disabilities/.
[2] Alzheimer’s Ass’n, 2022 Alzheimer’s Disease Facts and Figures, https://www.alz.org/media/Documents/alzheimers-facts-and-figures.pdf.
[3] The Conversation Project, https://theconversationproject.org
