If you are like most people, you are concerned about what happens to your property and other stuff after you become “old and funny.” You have worked hard your entire life to accumulate what you have and you want to make sure it is there when you need it.
As you age, there is a gradual decline in your physiological systems. You become more vulnerable to environmental and other conditions. You may start making financial decisions that you would have considered unwise or foolish when you were younger. This may include buying sprees on QVC or giving unusually large cash gifts to relatives or others who may take advantage of your vulnerability.
If you have done no estate planning and have no documents in place, the only choice your family may have is to ask the probate court to appoint a conservator to take control of your property and to make financial decisions for you. However, the court can only appoint a conservator if the court determines by clear and convincing evidence that as a result of some physical or mental deficiency or other condition, you are unable to effectively manage your property and business affairs and your assets would be wasted without proper management or needed for your support.
Unfortunately, the court may be not be able to appoint a conservator if you are only making poor choices. The court can’t fix stupid. If you are only making unwise or foolish decisions, the court cannot substitute its or your family’s judgment for yours.
If you have a financial power of attorney in place, your appointed agent can handle your financial affairs in these circumstances, but has no authority to stop you from making these inappropriate decisions. Even with a power of attorney, your family may still be required to petition the probate court for conservatorship to remove you as a signer on your accounts in order to protect your assets.
A conservatorship proceeding can be traumatic for your family, especially if at the time, you feel you do not need a conservator. Most of the time, if you are able, you have to attend the hearing along with your loved ones who have requested the conservatorship. Your loved ones then have to explain to the judge in front of you, all of the problems you have had, all of the poor decisions you have made and the result of those poor decisions. This can create ill will between you and your family.
If the probate court judge makes a determination that you are legally incapacitated and cannot handle your finances, then the judge then appoints a financial representative to handle your property and other financial affairs. This financial representative is called a conservator. The judge then decides what your conservator can do. Oftentimes, your conservator cannot make any expenditures above a certain amount, such as $200, without court approval.
For example, if your conservator needed to fix the roof on your home or get your furnace serviced, he or she would have to petition the probate court. It could take over a month to get these expenses approved by the court. In addition, when an attorney is used for these approval proceedings, it could cost more in legal fees than the expense being requested for approval. This is not the result that most people would want.
One of the best ways to protect yourself and your property from yourself when you become old and funny and keep the probate court out of your business is to have a fully funded living trust. Having a trust is not enough, it must be fully funded. Funding your trust is the titling of your assets consistent with the instructions you have left in your trust. Funding includes the proper naming of your trust or individuals as owners or beneficiaries of your assets and as additional insureds on your liability insurance policies.
The funding of your trust is critical in making your trust work and having the results that you want. Failure to properly fund your trusts will cause unintended consequences, which could include probate, distributions not in accordance with your instructions and other than you planned, additional taxes and additional administrative and legal expenses. What is the point of having a trust if you do not put anything in it.
You include mental disability provisions in your trust by naming a disability panel, usually made up of family and/or friends. Your disability panel could also include a doctor. I recommend that you have at least three people on your disability panel. In my trust, my disability panel includes my wife Emily, my Dad and my sister-in-law. If two out of the three determine that I am unable to effectively manage my property and financial affairs and have signed disability certificates to that effect, then I am removed as trustee, without court involvement.
If I disagree with my disability panel, I can always go to probate court and tell the judge that “I’m ok!” and ask him or her to keep me in charge despite my disability panel’s decision. You can designate that your disability panel make your disability decision either unanimously or by majority rule. Once your disability panel members sign disability certificates, you are out as trustee. After your successor trustees sign acceptances of trust, they can then take over for you to manage your property and financial affairs of your trust.
With a fully funded revocable living trust, your property is protected from your inappropriate decisions. With this type of plan, you control when you give up control, without court involvment.
By: Matthew M. Wallace, CPA, JD
Published edited September 30, 2012 in The Times Herald newspaper, Port Huron, Michigan as: Protecting your property from yourself