Most people have enough foresight to create a will or trusts to manage the distribution of their assets at their death. Some even have put powers of attorney in place in case they are incapacitated.

Unfortunately, few have given any thought to the lives that will be disrupted or the chaos sure to ensue if they wind up as Morgan Freeman so eloquently described in the movie “Driving Miss Daisy” as “Dun gone around the bend”. That “bend” from which there is no return is the point at which a person is no longer capable of making sound decisions. It may be a long, slow process of going in and out of lucidity, or it may be sudden.

In any event, it is human nature to resist admitting that one’s affairs may require third-party management, regardless of how much that third party is trusted. Dying without a will is bad enough, but at least you’re dead.   If a person is unable to make sound decisions because of a mental impairment, a whole new can of worms is opened.

Who’s to say whether the doctor, hospital, bank, or broker can act responsibly on your wishes, or those of your parents? If it has been determined that a person is not legally competent, the solution is a court-appointed guardian. A guardianship is one of the most time-consuming, expensive, and painful processes imaginable.

Certainly you have heard of people declared mentally incompetent because they were a danger to themselves or others. In this case, a judge must make a decision about the person’s legal competency and choose a guardian. In other cases, it is clear the person is no longer competent, yet the judge must still make this same determination and choose a guardian. What if you and your sister disagree over who should be the guardian? What if your sister wants to take advantage of the situation financially? All these issues must be flushed out in court with attorneys on the payroll.

There is much better solution, which is correctly drafted, durable powers of attorney — one for health care decisions and the other for financial decisions. If you act ahead of time to appoint someone to act on your behalf when you are unable to act on your own, the transition likely will be seamless. With a guardianship, a court will appoint someone to act on your behalf, but not necessarily the person you would have chosen and not necessarily someone upon whom your relatives would agree. The point is that every adult in America needs a durable power of attorney for health care and one for  financial decisions. Seniors and their families must realize that at some point we all will “go around the bend”. We just don’t know when.

Seniors and their adult children also should be aware that a minor cannot legally own property or receive an inheritance. Many estate plans inadvertently leave money to minors such as grandchildren. This could be because the adult child isn’t living at the time of the senior’s death, and the will says to distribute to the adult child’s “heirs at law”.  Often times a will could name the child but not provide a trust document to receive the money or property. If a child is left property and a trustee is not named, a court must appoint a guardian — who must be paid — to manage the assets, and a court must thereafter supervise the guardian’s activities, approve certain expenditures, etc. In addition, a court is not going to allow much freedom in terms of investments.

Other common estate planning problems are based in coordination. Your goals for estate planning may differ from those of your parents. For example, suppose a couple wants to leave an adult child their estate outright, with no strings attached. Suppose that child is someone concerned about asset protection or perhaps has a large estate already. That child’s goal is to reduce the size of his or her estate and keep assets beyond the reach of creditors. An inheritance may defeat the child’s objectives, and a trust cannot be created after the death of the parent. The only choice is to disclaim the assets.

Another scenario involves leaving money to someone who does not manage money well or to someone who winds up in a major life shift such as a divorce. In these cases, it is quite possible that the parents’ money will be frittered away or end up in the hands of an ex-spouse.

Suppose you manage money well but your brother is a slacker. Your parents might want to consider setting up a trust to protect your brother from himself. Your brother may resent having to deal with a trustee while you don’t, which is another issue to be dealt with. Some families decide to leave their assets to charities or other causes, which can result in great heartache if the news comes as a surprise. All these issues need to be discussed and coordinated between generations prior to a problem developing. Every family has its issues; I’ve never seen an exception.

Word about Living Trusts

Living trusts are by far the most over-marketed financial tool around. Attorneys and slick marketers prey on seniors’ fears of the probate process of legally establishing the validity of a will before a judge. Living trusts can be effective tools when they are needed.  Or they can be a waste of money when they are not. Living trusts will not completely prevent probate, save estate taxes, or protect assets. They provide a mechanism to manage assets in the event of a disability and distribute assets at death without probate.

Living Trusts are actually called “revocable trusts” so they can be revoked at any time and they are private and very difficult to challenge after the trust creator dies.     However, the trust must contain the assets in question or it is useless. Life insurance, joint property, annuities, and IRA’s all transfer to the beneficiary without probate anyway. Putting an IRA in a living trust will trigger immediate income taxes on the IRA. Living trusts are indicated where there may be a great deal of assets, property in different states, privacy concerns or potential disputes among beneficiaries.

Every person should have at least a will, durable powers of attorney for health care and financial decisions and a directive to physicians regarding live-saving measures.

These documents should be reviewed periodically because things change. Children grow up and get married, trustees die and tax laws change.