9.6 Incapacity Planning, Probate & Intestacy
Key Takeaways
- A durable power of attorney survives the principal’s incapacity because of express durability language, while a springing power takes effect only on a defined incapacity trigger and frequently causes delay because institutions demand physician certifications before honoring it.
- Healthcare decision-making requires three separate instruments working together: a healthcare power of attorney naming an agent, a living will or advance directive stating end-of-life preferences, and a HIPAA authorization permitting providers to release protected health information to named individuals.
- A funded revocable living trust is the most effective incapacity tool available because the successor trustee assumes control of trust assets immediately upon the grantor’s incapacity without any court proceeding and without an institution second-guessing a power of attorney form.
- Probate governs only assets titled in the decedent’s individual name without a beneficiary designation; assets held in trust, held jointly with survivorship rights, or passing by beneficiary designation transfer outside probate regardless of what the will says.
- Dying intestate hands distribution to a state statutory formula that commonly splits the estate between a surviving spouse and descendants, produces a guardianship proceeding for minor children, and in blended families frequently disinherits the people the decedent actually intended to benefit.
9.6 Incapacity Planning, Probate & Intestacy
The sophisticated techniques in this chapter — GRATs, IDGTs, dynasty trusts — all assume a competent client and an orderly death. This section covers the two situations those techniques do not address: a client who is alive but cannot act, and a client who dies without a plan. Both are heavily represented on the content outline, and both are where real families sustain the most avoidable damage.
1. Incapacity: the Four Documents
The Durable Power of Attorney (Financial)
A power of attorney is an agency instrument. At common law, agency terminated upon the principal's incapacity — the precise moment it is needed. A durable power contains express language ("this power shall not be affected by subsequent disability or incapacity") that overrides that rule.
| Feature | Immediate (Springing-Free) | Springing |
|---|---|---|
| Effective | On execution | Only upon a defined incapacity trigger |
| Client comfort | Lower — the agent has authority today | Higher |
| Practical usability | High | Low — institutions often demand one or two physician certifications, and HIPAA can block the very disclosures needed to prove the trigger |
Most practitioners now favor an immediately effective durable power held in escrow with counsel, because the delay in proving a springing trigger frequently defeats the document's purpose.
Powers that must be granted expressly — a general grant is not enough, and their omission is a classic exam issue:
- The power to make gifts (and whether limited to the annual exclusion amount)
- The power to create, amend, revoke, or fund a trust
- The power to change beneficiary designations
- The power to disclaim an interest
- The power to delegate authority
Without express gifting authority, the agent cannot continue an annual exclusion gifting program during a long incapacity, and an entire transfer strategy stalls.
The Healthcare Power of Attorney
Names an agent to make medical decisions when the principal cannot. This is a decision-maker document — it names who decides.
The Living Will / Advance Directive
States the principal's own wishes about life-sustaining treatment, artificial nutrition and hydration, and comfort care. This is an instruction document — it says what the client wants. A physician order for life-sustaining treatment (POLST/MOLST) converts those wishes into an actual medical order in some states.
The HIPAA Authorization
The Health Insurance Portability and Accountability Act bars providers from disclosing protected health information without authorization. Without a signed HIPAA release naming the agent and family members, a healthcare agent can be legally appointed and still unable to obtain the medical information needed to decide anything — and, as above, unable to obtain the certification a springing financial power requires.
Why a Funded Revocable Trust Beats All of Them
A revocable living trust that actually holds the client's assets provides incapacity administration that no power of attorney can match. On the grantor's incapacity — determined by whatever standard the instrument specifies — the successor trustee simply begins acting. There is no court proceeding, no institution refusing an unfamiliar form, and no gap. The catch is funding: an unfunded revocable trust is an empty box, and assets never retitled into it remain exposed to guardianship.
Guardianship / Conservatorship — the Failure State
Without these documents, the family petitions a court to appoint a guardian of the person and a conservator of the estate. The process is public, expensive, slow, subject to ongoing court supervision and annual accountings, and puts a judge — not the client — in charge of choosing the decision-maker.
2. Probate Administration
Probate is the court-supervised process of proving a will, appointing a personal representative, marshalling assets, paying creditors, and distributing what remains.
What Is and Is Not Subject to Probate
| Passes through probate | Passes outside probate |
|---|---|
| Individually titled real property and accounts | Assets titled in a revocable or irrevocable trust |
| Tangible personal property | Joint tenancy with right of survivorship and tenancy by the entirety |
| Assets payable to the estate | Payable-on-death and transfer-on-death accounts |
| Interests with no surviving beneficiary | Retirement accounts and life insurance with a valid living beneficiary |
The rule candidates must internalize: a beneficiary designation or survivorship title beats the will, always. A client who leaves "everything equally to my three children" in a will but names only the eldest on a $6,000,000 IRA has left that IRA entirely to the eldest.
Costs and Timing
Probate typically runs six to eighteen months, longer with litigation. Costs run roughly 3% to 8% of the probate estate depending on the state, with a few states using statutory percentage fee schedules. Probate is public, so the will, the inventory, and often the values become searchable records — a genuine privacy concern for wealthy families and a common motivation for trust-based planning.
Ancillary probate is the multi-state problem: real property owned in another state requires a separate proceeding in that state. A client with homes in three states can generate three probates. Holding out-of-state real property in a revocable trust or an LLC eliminates this.
The Personal Representative's Duties
Marshal and inventory assets, obtain date-of-death valuations, publish creditor notice and run the claims period, file the decedent's final Form 1040 and the estate's Forms 1041, file Form 706 if required (including any portability election — see §9.1), pay taxes and expenses, and distribute under court supervision.
3. Intestacy: When There Is No Will
An intestate estate is distributed by a state statutory formula. The formulas vary, but the recurring patterns are testable:
- Surviving spouse and joint descendants: many states give the entire estate to the spouse; others give the spouse a fixed dollar amount plus a fraction of the balance.
- Surviving spouse and descendants from a prior relationship: the spouse's share is commonly reduced to one-half or less, with the balance to the decedent's children. This is where blended families are most damaged.
- No spouse, only descendants: to descendants, typically per stirpes — each branch of the family takes the share its ancestor would have taken.
- No spouse or descendants: to parents, then siblings, then more remote kin, and ultimately escheat to the state.
Intestacy also produces consequences beyond distribution:
- The court appoints a guardian for minor children, with no nomination from the parents.
- Minors receive property outright at the age of majority — 18 in most states — rather than in trust.
- No unlimited marital deduction planning, no credit shelter trust, and no GST exemption allocation is possible, so an estate that could have passed tax-free may generate a tax.
- Unmarried partners, stepchildren the decedent never adopted, and charities receive nothing, regardless of intent.
Exam Trap — half-blood and adopted relatives. Most modern statutes treat legally adopted children exactly as biological children for intestacy purposes, and most treat half-siblings the same as whole siblings. Stepchildren who were never adopted, by contrast, are generally not heirs. In a blended family this distinction decides who inherits.
4. The Practical Review Checklist
For every client, confirm and date:
- Durable financial power of attorney — with express gifting, trust, beneficiary-change, and disclaimer powers
- Healthcare power of attorney
- Living will / advance directive, and a POLST where available
- HIPAA authorization naming every person who may need information
- Revocable trust — and confirmation that it is actually funded
- Beneficiary designations on every retirement account, annuity, and insurance policy, reconciled against the will
- Titling review for out-of-state real property
- Nomination of guardians for minor children
A client executes a springing durable power of attorney effective only upon a written determination of incapacity by two physicians. Three years later she develops rapidly progressing dementia and her son attempts to act as agent to manage a pending real estate closing. What is the most likely practical obstacle?
A widower with three adult children dies with a will leaving his entire estate "in equal shares to my three children." His assets include a $6,000,000 IRA naming only his eldest daughter as beneficiary, a $3,000,000 joint brokerage account held with that same daughter as joint tenants with right of survivorship, and a $2,000,000 individually titled residence. How is the estate distributed?
A client in a second marriage dies intestate. He is survived by his wife of eight years, two children from his first marriage, and one stepchild he raised but never legally adopted. Which statement best describes the typical outcome under modern state intestacy statutes?