Planning for Incapacity
A. Incapacity. As a general rule, each person has the authority to make decisions concerning himself or herself and no other person automatically has that authority. As long as a person has the capacity to make decisions, this rule for decision-making works. If a person becomes legally incapable of making decisions, however, the general rule does not work. In that case, authority to make decisions concerning the incapacitated person or his/her property must be transferred to another person.
- Incapacity defined. Incapacity can be defined as the lack of capacity to make and enforce a decision. The test for capacity may differ depending among the specific decision to be made. In most cases, the decisions that will have to be made for an incapacitated person will involve contracts, financial matters, wills and health care issues.(a) Capacity to contract. The person making the decision must generally have the capacity to enter into a binding contract. A person has the capacity to contract if that person has the ability to comprehend the nature of the transaction and to understand its quality and consequences.(b) Capacity to make health care decisions. Under Oregon law, a person has the capacity to consent to health care decisions unless the person’s ability to receive and evaluate information effectively or communicate decisions is impaired to the extent that he or she cannot take the actions necessary to prevent serious physical injury or illness.(c) Capacity to Make a Will. A person must be of “sound mind” to make a Will which means that at the time of the signing of the Will the testator: i) Was able to understand the nature of the act in which he or she was engaged; ii) Knew the nature and extent of his or her property; iii) Knew without prompting the claims, if any, of the persons who were, should or might be the natural objects of his bounty; and iv) Knew the scope and reach of the provisions of the Will.(d) Incapacity for appointment of Guardian/Conservator. Before ordering the appointment of a Conservator, the court must find that the individual is “financially incapable.” Financially incapable means “a condition in which a person is unable to manage financial resources of the person effectively for reasons including, but not limited to mental illness, mental retardation, physical illness or disability, chronic use of drugs or controlled substances, chronic intoxication, confinement, detention by a foreign power or disappearance.” “Managed financial resources” means those actions necessary to obtain, administer and dispose of real and personal property, intangible property, business property, benefits and income.” Before ordering the appointment of a Guardian, the court must find that the individual is “incapacitated” which means that the person’s ability to receive and evaluate information effectively or to communicate decisions is impaired to such an extent that the person presently lacks the capacity to meet the essential requirements for the person’s physical health or safety. The essential requirements for physical health and safety means “those actions necessary to provide the health, care, food, shelter, clothing, personal hygiene and other care without which serious physical injury or illness is likely to occur.”
B. Methods for Transferring Authority to Make Decisions for Incapacity.
- Guardianship/Conservatorship. Where no planning has taken place for incapacity, i.e., Durable Powers of Attorney, etc., it may become necessary for the Court to appoint a Guardian or Conservator in order to transfer the power necessary to make decisions on behalf of the incapacitated person (sometimes called the protected person). The Guardian is the person who makes personal decisions, e.g., healthcare and where the person resides, and a Conservator is a person chosen to manage the property of the protected person. The Guardian/Conservator may often be one and the same person. Appointment of a Guardian/Conservator can be a time- consuming and expensive process which involves court supervision of all decisions made by the Guardian/Conservator. The expenses of the Guardianship/Conservatorship are paid out of the estate of the protected person.
- Durable Power of Attorney. A Durable Power of Attorney is a document that allows someone else, your attorney-in-fact, to act on your behalf when you direct them to do so or when you become incapacitated and are no longer competent to manage your affairs. The Oregon legislature has just passed a new law which amends the Durable Power of Attorney statute. The previous law provided that the power of attorney remained valid notwithstanding the later disability or incompetence of the principal. The new law now states that the power of attorney remains valid even though the principal become “financially incapable.” The legislature also states that the term “financially incapable” has the same meaning as it does in the conservatorship statute. The law has also been amended to allow what is known as a “springing power of attorney.” This merely means that the principal may establish a specific event in the future that must occur before the power of attorney becomes valid. The law also specifically allows the principal to designate a person or persons to determine whether the specified event or contingency has occurred and the manner in which the determination must be made.In some respects the Durable Power of Attorney is similar to and may overlap the authorities provided in a living trust. However, a Durable Power of Attorney is automatically revoked when you die. It is a powerful document which allows the attorney-in-fact to do anything that you can do legally respecting your property or finances. The Durable Power of Attorney can avoid the need for the appointment of a Conservator in the event you become financially incapable.
- Declaration for Mental Health Treatment. This document allows you to make decisions in advance about certain types of mental health treatment: psychoactive medication short term not to exceed 17 days admission to a treatment facility, convulsive treatment and outpatient services. The instructions that you include in this declaration will be followed only if a court or two (2) physicians believe that you are incapable of making treatment decisions.The law also allows you to appoint a person as your representative to make treatment decisions for you if you become incapable. The person who you appoint has a duty to act consistently with your desires as stated in the declaration. If your representative does not know your desires, he or she must make decisions in your best interests. This is essentially a power of attorney for mental health treatment. A mental health declaration continues in effect for a period of three (3) years unless you become incapable of participating in mental health treatment decisions. If this occurs, the directive will continue in effect until you are no longer incapable. You have the right to revoke the declaration any time so long as you remain capable.
- Advance Directive. The Advance Directive and Health Care Power of Attorney documents do essentially two things. First, they express your wishes to your physician or medical care provider regarding, what, if any, artificial life support you wish to receive. Second, they appoint a third party to make those and other health care treatment choices when you are too ill to do so for yourself. These documents are sometimes referred to as a “Living Will.”
- Property Held in Trust. The Living Trust is a document which describes the arrangements that you make for management and distribution of your assets during life and after death. It essentially functions as a Will substitute by providing directions to the Trustee regarding the distribution of assets after your death. For most people, the principal advantage is that a Living Trust avoids the necessity of probating your estate after you die. The Living Trust may also have some lifetime benefits by providing for a successor trustee, someone other than you, to manage your property if you have become incapacitated. This can avoid the costly and cumbersome process of having a Conservator appointed by the court. The Living Trust in effect becomes a separate legal entity. The Living Trust avoids probate and/or a Conservatorship because you transferred your assets into the trust when it was established and provided for a successor trustee to manage the assets during your incapacity and after your death.
Article Written By: Warren Allen Estate Planning Team
DISCLAIMER: The information contained herein is based on Oregon law and is subject to change. It should be used for general purposes only and should not be construed as specific legal advice by Warren Allen, LLP or its attorneys. Neither this website nor use of its information creates an attorney – client relationship. If you have specific legal questions, consult with your own attorney or call us for an appointment.