Use trusts for incapacity planning

To ensure your property is protected in the event that you become mentally incapable of managing it, there are two options— you can use a trust, such as an alter-ego or joint-partner trust if over the age of 65, or you can use Continuing Power of Attorney for Property.

Most people are familiar with the latter option, but a trust—a legal relationship in which you (the settlor) transfer property to another person (the trustee) who then holds the title of that property for the benefit of others (the beneficiaries) — is your best choice. Trusts are:

Comprehensive.

Trustees’ duties and powers can be tailored to many circumstances. CPAPs rarely outline how to appoint and replace attorneys, and they don’t usually give detailed directions explaining how to manage the property.

Continuous.

A trust is better for estate planning because it continues in the event of your death — management of the property is uninterrupted.

On the other hand, a CPAP ends if you die, leaving your beneficiaries with extra stress as they wait until your will goes through probate for the executor to take over property management.

This can cause major delays, because banks and other third parties typically require probate as proof of authority.

Protective.

A trust can outline the procedure for assessing incapacity, and requires the trustee participate with you in decisions, or make them alone if you become incapacitated. Since you can’t revoke the trust, these measures help ensure family members and others don’t unduly influence the management and distribution of your property.

By contrast, if you are using a CPAP you can still manage your own property, and even try to revoke the CPAP, after you become incapacitated, defeating your original intentions.

Private.

A trust is confidential, so there is typically less scrutiny by courts or regulators. A CPAP, by contrast, is no longer valid if someone applies to the courts to appoint a guardian of property and the application is granted; that won’t happen if the property is under a trust.

Interjurisdictional.

If you become incapacitated while owning property in more than one province or country, you may need to appoint a power of attorney, guardian, or legal representative in each jurisdiction. That’s expensive and time-consuming. Using a trust avoids these requirements.

Before choosing a trust, talk with your advisor about your situation, along with tax implications, any professional planning and administration costs, possible ongoing trustee fees, and your comfort level in sharing decision-making with co-trustees.