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Home / Money / Personal Finance /  Incapacitation is distressing, but planning can help

One situation that requires planning for and preparation to overcome, but is generally ignored, is that of an elderly member of one’s family becoming physically or mentally incapacitated to take any financial decisions legally or otherwise.

“According to Indian law, any person who is not of sound mind cannot take substantial decisions such as entering into contracts, executing and signing estate documents, and issuing cheques. Such a person is known as incapacitated, and, hence, is not allowed to take his or her own financial or medical decisions," said Mani Gupta, partner, Sarthak Advocates & Solicitors.

She added that keeping in mind the possibility, it is advisable to plan for incapacitation. In the absence of such a plan, immediate family, close family members or friends have to take decisions in place of the incapacitated person. In the absence of immediate family members, the matter may be taken up by courts, which appoint guardians or conservators to oversee the management of a person’s estate if there is no legally appointed agent acting on their behalf.

Plan ahead: “The first thing required in planning for incapacitation is to ensure there is adequate health insurance coverage so that any expenses on treating illnesses will not be a drain on the wealth of the family. This is best done as early as possible, preferably when one is still healthy and young," says K.S. Raghunandan, founder and chief executive officer, Eldersindia, an online platform curating a comprehensive range of senior care services for corporate employees and their senior family members.

Second, it is best to have the information on all investments one has made in one place (preferably in one page or document) and inform the family of its existence. Keep this information updated regularly.

It is also important to cover the possibility that the illness may result in death; one should do estate planning (a Will, for example) so that the wealth gets managed and inherited according to one’s preferences, and have a term insurance plan to ensure adequate financial security to the family.

“If one has an elderly parent who has not done the above or does not know how to go about it, take steps to encourage him or her to get this done—maybe with some outside help," adds Raghunandan.

Power of attorney: One way to deal with such a situation is to give a power of attorney (PoA) to another person. “The PoA holder acts as the agent of the person who gives it. Under the Indian Contract Act, if the principal or agent becomes a person of unsound mind, the agency terminates. Therefore, in cases of mental emergency, which can lead to the person being of unsound mind, PoA may not be of much use," says Gupta.

So, if a person is suffering from conditions such as dementia or Alzheimer’s disease, a PoA may become invalid.

In cases of physical emergency, which may not result in the giver of PoA becoming of unsound mind, the PoA holder may act on behalf of such persons. For example, if a person is hospitalized and of sound mind, but cannot discharge certain functions, a PoA is valid.

“However, before you give the PoA to another person, there are a few things to keep in mind," says Deepak Jain, founder director, Nexgen Estate Planning Solutions. The person you are giving the PoA should be someone you can trust and he or she should be capable to act as an attorney holder. “Finding trust and capability in one person is a challenge," he says.

The document should also clearly lay out what the person is allowed to do and not to do, so that there is no dispute.

Also, in giving authority under the PoA, it is important to fix its purpose and the period to avoid misuse.

Forming a trust: A private family trust is the recommended option in such a situation. “You and your spouse can form a private family trust where both of you are the settlor, beneficiaries and trustees of this trust. You then move your personally owned assets to this trust," says Jain. Now, in case one of you is incapacitated, the remaining trustee can operate the assets of the trust; in case one of you passes away, the surviving trustee can access the assets.

There are no minimum requirements to from a trust in terms of rupees. The trust can be formed with assets of even with a few thousand rupees. One can always gift more assets to the trust anytime later.

The process of incapacitation planning may not be pleasant. But, it should be done to protect yourself and those closest to you.

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