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Trust Law/Level III · Family trusts/3.1 The living trust/Lesson 4

Incapacity: who takes over while you are alive

How a living trust manages your assets if you cannot make decisions

Education, not legal advice. Trust law changes from country to country and state to state, and the right structure depends on your situation. Anything you sign should be drafted or reviewed by a qualified lawyer where you live.

The lean path

The cheapest, lowest-tax, simplest and most private route the law allows, best first. Each step names the rule it rests on and the condition that keeps it lawful.

  1. Sign a durable financial power of attorney; under the Uniform Power of Attorney Act, as in Maine 18-C §5-904, it is durable unless it says otherwise. Catch: Maine requires notarization (§5-905), and trust-amending powers must be granted expressly (§5-931).
  2. Use your state’s free advance-directive forms for a living will and a health-care proxy; the National Institute on Aging explains both. Catch: a living trust gives no medical authority, and witnessing and notary rules differ by state.
  3. Name a health-care agent or sign a HIPAA authorization so doctors can certify incapacity; an agent with health-care authority must be treated as the patient’s personal representative (45 CFR §164.502(g)). Catch: the trust’s own incapacity test still governs the takeover.
  4. Have the successor trustee show banks a short certification of trust (UTC §1013) instead of the full document; it need not contain dispositive terms, and good-faith reliance is protected. Catch: it reaches only assets titled in the trust’s name.
  5. Prevent a premature takeover in the wording itself, at no extra cost: require two physicians’ certification and allow reinstatement on recovery. Catch: under UTC §603, while the trust is revocable the successor’s duties run to the settlor, so keep records.

MaterialsA copy of your current Revocable Living Trust documentA list of all financial accounts and property titles in your nameA draft or existing Durable Power of Attorney for financesA Health Care Directive or Advance Health Care Directive

Wonder

  1. What specific proof triggers the successor trustee’s authority?
  2. Which assets remain untouched by the trust if I become incapacitated?
  3. How do I prevent a premature takeover while protecting my interests?

Explore

  1. In the US, if you become unable to manage your affairs, a revocable living trust usually lets the successor trustee you named take over management of the trust’s assets without asking a court to appoint a guardian or conservator. Court proceedings of that kind can be slow and costly, their records can be partly public, and the court supervises the person it appoints. This works only for assets actually titled in the trust’s name. Property outside the trust stays in your own name, and the successor trustee has no power over it; someone needs separate authority to handle it.
  2. How incapacity is decided is set mainly by the trust document, not by one national rule. Many documents say the settlor is incapacitated when one or two licensed physicians certify in writing that the settlor can no longer manage their financial affairs, or when a court so finds. Some instead let a named family member or small group decide. Clear wording reduces disputes; vague wording can lead to arguments, delay, or a court case to settle whether the test has been met. Reading this clause in your own document shows how your trust works.
  3. Assets outside the trust, such as an account in your own name, a car or a retirement account, usually need a durable power of attorney for finances. ‘Durable’ means it keeps working after you lose capacity. Under the Uniform Power of Attorney Act (2006), adopted in some form in many US states, a power of attorney is durable unless it says otherwise; in some other states it must say so expressly. A ‘springing’ power takes effect only on incapacity. Without one, family members may have to ask a court to appoint a guardian or conservator for those assets.
  4. Health-care decisions are separate from money. A living trust does not give anyone power to make medical choices for you. The US National Institute on Aging describes two common advance directives: a living will, which records the treatments you would or would not want, and a durable power of attorney for health care, which names a health-care proxy to decide for you. Names, forms and rules vary by state, and many states publish free forms. Without a directive, state law decides who may make medical decisions for you, often a spouse, parent or adult child.
  5. A trust can also protect the settlor against a premature takeover. Some documents require certification by more than one physician, let the settlor return as trustee once a doctor certifies recovery, or name a co-trustee or another person to watch over the successor trustee. A successor trustee is a fiduciary. Under the model Uniform Trust Code §603, while a trust is revocable the trustee’s duties are owed to the settlor, so the successor must manage the assets for the settlor’s benefit, not their own. States vary, and the exact wording of the document matters.
  6. Some practical gaps often appear. Doctors may not share medical information without the patient’s permission, so some trust documents include, or are paired with, a written authorization under the US federal health-privacy law (HIPAA) letting named people receive it. Banks may ask a successor trustee for the trust document or a shorter ‘certification of trust’ (Uniform Trust Code §1013) before accepting their authority. The costs of a court guardianship and of running a trust both vary widely by state and by case, so no typical figure is given here.

Key facts

  • In the US, a revocable living trust usually lets a successor trustee manage trust assets, without a court guardianship or conservatorship, once incapacity is shown as the document defines it.
  • Incapacity is usually determined as the trust document defines it, often by written certification from one or two physicians.
  • Assets not titled in the trust are not managed by the successor trustee during the settlor’s lifetime incapacity.
  • A durable power of attorney for finances is usually needed to manage non-trust assets if the settlor becomes incapacitated; without one, a court may have to appoint a guardian or conservator.
  • Medical decisions need a separate health-care document, such as a living will or a durable power of attorney for health care; names and forms vary by state.
  • Under the model Uniform Trust Code §603, while a trust is revocable the trustee’s duties are owed to the settlor.

Exercise nine, six, three, one

9CollectList up to 9 assets you own (most people have fewer), such as bank accounts, a home, investments, a retirement account or a car, and note for each whether it is titled in your trust’s name or in your own name.
6ClusterSort the assets into 6 categories: bank accounts, real estate, investments, retirement accounts, vehicles, and other property, marking each as inside or outside the trust.
3DistillReduce the 6 categories to 3 groups: assets a successor trustee could manage, assets that would need an agent under a power of attorney, and assets you are unsure about.
1CrystallizeWrite 1 sentence naming which money and medical decisions would have no one clearly authorized to make them if you were in hospital tomorrow.

Fact check

Dates, figures and claims checked against the published sources listed below.

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