Succession is an important issue in estate planning. Usually, succession is discussed in terms of an asset owner’s or business owner’s death. Who should succeed me as owner and manager of my assets or business on my death? A less often discussed, but also significant, issue is succession in disability situations.

If I am disabled, and unable to make decisions, who should succeed me as manager of my assets or business?

For these purposes, disability can be generally defined as a condition that deems you legally unable to make decisions. As medicine has advanced and extended life expectancies, but problems such as dementia, Alzheimer’s disease, and comas persist, disability has become an increasingly important issue in estate planning. If you are considered disabled, you cannot legally engage in transactions. As a result, if disabled, for example, you could be denied the ability to sell stock in a declining stock market, or sell real estate to realize cash and/or move to a new property. If you have a business, disability can prevent you from being able to execute or authorize basic contracts or payments and impede the day-to-day operations of the business.

If you do not engage in prior disability planning, disability can subject you to a guardianship or conservatorship proceeding. A guardianship or conservatorship proceeding generally will result in various negative consequences, including the possible appointment of an unqualified or undesired person to manage your assets or business, delays in being able to take action, significant legal and court costs, and lack of privacy.

These adverse consequences from a guardianship or conservatorship proceeding can be avoided by prior disability planning. Prior disability planning can be implemented by execution of a Property Power of Attorney and a Living Trust before your disability. These documents can designate a qualified and desired person to manage your assets or business in the event of your disability, with no delays in being able to take action, minimized legal costs, and complete privacy.

In executing Property Powers of Attorney and Living Trusts in disability situations, you should keep in mind 3 issues. First, you should designate both initial and successor managers (agents under a Property Power of Attorney, and successor trustees under a Living Trust) under these documents. By having successor managers, your disability planning can continue to work even if your initial managers are unable to serve. Second, you should consider having different managers for different assets or businesses, if appropriate. For example, while a family member may be an excellent choice to manage your home or other personal assets, the same family member may not have the experience or competency to manage a stock portfolio or the operations of a business. You may want a “key employee” to manage your business in the event of your disability. Third, the Property Power of Attorney and Living Trust should have “unwinding” provisions; if your disability lapses, you should be able to easily regain
management control over your assets or business.

Disability is not a pleasant subject to consider. However, with prior disability planning, you can avoid the unfavorable consequences from a guardianship or conservatorship proceeding. If you have not yet addressed the issue of succession in disability situations in your planning, you should review and discuss it with your advisers.

If you wish to discuss any of the above, find Pen Pal Gary’s contact info here.

Disclaimer: please note that nothing in this article is intended to be, or should be relied on as, legal advice of any kind. Neither LHBR Consulting, LLC nor Gary Stern provides legal services of any kind.

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