Most people contact me because they are concerned with end of life issues. They want to make sure that everything they have will pass smoothly to their loved ones. Most clients define ‘smoothly’ as quickly, without much bureaucracy and cost effectively (including low tax). This goal is, of course, laudable.
I remind all potential and current clients that they must also plan for the possible event of incompetency. It is not surprising that as we age, the risk of encountering dementia rises. This is true no matter where you reside. The causes of incompetency are wide and varied. One can become unable to handle their financial or medical affairs (incompetent) overnight due to a sudden issue (for example, an accident) or over time.
Many clients are surprised to learn that their spouse or a child cannot merely continue to handle their financial affairs if they can no longer do so themselves. For example, a U.S. financial institution will insist on speaking with the owner or both owners of an account to perform certain tasks. Of course anything involving real estate will require the owner’s signature.
Therefore, if one can no longer make financial decisions, to continue to be able to operate as usual with U.S. assets, U.S. state law will require the appointment of a guardian for the person who is incompetent. In most states, a guardian must be a resident of the state in which guardianship is sought. Typically a court will accept at least U.S. residence, even if not in the particular state. If one’s spouse and children are not U.S. residents, someone else will have to be appointed – a more distant relative or a corporate guardian, for a fee.
When a guardian is appointed, the court will have to approve any financial decisions or actions out of the ordinary, including large sales of stock, changing investment vehicles, sale of real estate or mortgages, etc. Therefore, a guardianship is bureaucratically cumbersome and can be costly. The fees involved can include a corporate guardian’s fees, attorney’s fees to obtain guardianship and to apply to the court when the guardian seeks court approval for certain transactions, and some courts charge a court fee for processing the guardianship annually, which is a percentage of the assets that the guardian manages.
Avoiding Guardianship
There are other ways to plan for incompetency, and to avoid guardianship. Some include a power of attorney and a trust. Consult with your U.S.-international estate planning professional.
If you own assets in countries other than the U.S., and if you reside outside of the U.S., your incompetency planning needs to be done separately in each country in which you own assets or reside. So a client who resides in Israel and owns assets in the U.S. and the U.K., must have separate documents to plan for incompetency in each of those three countries. Powers of attorney in particular, do not cross borders.
Inability to Make Medical Decisions
For those clients who reside outside of the U.S., but spend significant time in the U.S., I advise to execute a health care proxy or power of attorney as well as a living will. Typically both of these documents together are called a “Medical Directive”. Terms differ among states. There is no reason to execute U.S. documents regarding medical decisions unless one feels strongly about certain medical treatments, or if one’s family situation might not enable their spouse or children to make decisions for them as a given.
The Medical Directive should be per the laws of the state where you spend most of your time when visiting the U.S., should you decide to execute one. This is to reduce the risk that a medical institution will not recognize the Medical Directive you have executed.
Conclusion
Incompetency planning needs to be an integral part of your estate plan. Make sure to ask your estate planning professional to put a plan for incompetency in place as well. If you are a global family, this is doubly important.
Disclaimer: None of this article is to be construed as legal advice. If you have encountered any issues discussed here, get the appropriate legal advice for you and for your client.
We are at your service for any questions or clarifications via email or phone at 03-370-5000
With regards,
Intergenerational Transfers, Private Wealth Management & Domestic Law Practice
Shibolet & Co.
The information in this update is provided solely as general information and may not be relied upon for any individual instances without further legal consultation.
