Estate Planning Articles

Financial Planning for Incapacity

by Alli Thomas

Dec 1, 2021

It may be unpleasant to think about, but incapacity planning is an important aspect of financial planning, especially for older retirees (or younger adults with aging parents). 

Here are some tips that you can follow to help ensure that finances will be managed properly if you or your loved one become incapacitated. 

First, determine who will manages finances in case of incapacity. 

Much like you would with estate planning, before you get started, you want to determine who you want to manage your finances and ensure that they are up for the job. 

Once you have identified that person – or people – there are three things you can do to ensure they have the right authority to manage someone’s finances in case of incapacity, along some pros and cons for each: 

1. Add them as a joint account owner.

Making someone a joint owner of all accounts is the quickest and easiest way of giving them authority over someone else’s finances.  

The downside is that it also provides the lowest amount of protection in case of incapacity. 


1. Easy 

2. Quick 

3. Inexpensive 


1. The joint owner can do whatever they please with the money. 

2. Assets become subject to the joint owner’s creditors in the event of bankruptcy and could even become up for grabs in the event of a divorce or lawsuit. 

3. Not available for all accounts.

2. Grant Power of Attorney (POA).

Granting someone Power of Attorney provides more protection while still allowing them to manage finances on another person’s behalf. 


The person assigned becomes an agent who is legally required to act in the best interests of the person they have Power of Attorney for, including not using the money on themselves. 

1. Power of Attorney can be granted in two scopes:

  • General, which provides control of all accounts to the extent legally possible.
  • Limited, which grants a more limited scope of authority.

2. Power of Attorney can come into force in three ways: 

  • “Springing,” which comes into force at the moment of incapacity. 
  • Durable, which comes into force as soon at is authorized and lasts indefinitely. 
  • Nondurable, which grants authority for a set period or for a specific transaction. 

3. Power of Attorney can be revoked or changed. 


1. Many financial institutions will not honor a generic Power of Attorney and will require completion of their own documents. 

2. Power of Attorney documents need to include specific wording to carry out the grantor’s wishes. 

3. Establish a revocable living trust.

A revocable living trust provides the greatest protection for your assets, but can be costly to set up and manage. 


  • Putting accounts/assets in a trust helps ensure that they benefit the account holder for the duration of their lifetime. 
  • The terms of the trust can be changed at any point, including termination of the trust. 
  • The trust must be administered by a trustee, who has a fiduciary responsibility to act in the interest of the trust’s beneficiary. 
  • Trusts are accepted by most financial institutions. 
  • Trust can bypass probate or can be terminated upon the beneficiary’s death. 
  • Trusts can have a successor trustee, who takes over the trust after the beneficiary’s death, or a co-trustee that can manage the trust immediately. 


  • A co-trustee could potentially act irresponsibly. However, the creator can revoke the co-trustee and name a new co-trustee. 
  • The trust must be funded in advance of the creator’s incapacity. 
  • Trusts are more expensive to establish and administer. 
  • Assets in the trust are not protected from creditors. 

Incapacity planning is best done with professional help 

It can be difficult to decide how your finances will be handled if you become incapacitated and to set up everything correctly, especially if you have a complex financial situation or significant assets.  

Because of the risks involved in letting someone else manage your finances while you’re incapacitated, it is important to ensure your money is protected. 

But you don’t have to stress out on your own. An experienced financial advisor can not only help you determine what the best plan of action is for your unique situation, but also help make sure that all of the paperwork is properly filled out. 

Not sure where to begin? Get started today by requesting a no-cost, no-obligation advisor consultation and review of your finances with our Results In Advance Planning method. 

Request a no-cost, no-obligation advisor consultation today!

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Alli Thomas

Alli Thomas has worked in the financial services industry for nearly 20 years, with a focus on retirement-related investing. She began her career as a FINRA-licensed participant-services call-center associate at Vanguard, and then moved to Principal Financial Group, where she worked closely with employers, assisting with retirement plan set-up and design, selecting appropriate plan investment offerings, and maximizing employee participation through targeted education campaigns and enrollment meetings. Alli has also worked as a qualified 401(k) administrator and registered investment advisor for several small investment firms. She now writes about all things investment- and finance-related, leveraging her extensive experience and passion for retirement planning to help investors make well-informed financial decisions.

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