Incompetency Protection: Planning for the “What Ifs” in Retirement

You’ve carefully built your retirement strategy — your TSP is on track, your pension is set, and your benefits are secured.

But what happens if one day, you can’t manage your finances or make decisions for yourself?

It’s not a comfortable topic, but incompetency protection is a crucial part of a complete retirement plan.

Losing the ability to handle your own affairs could lead to poor investment decisions, falling for scams, or missing out on benefits — any of which can diminish your legacy and disrupt your family's financial stability.

Let’s walk through two key strategies to guard against this risk:

Establishing a durable power of attorney and creating a revocable living trust.

🖋️ Durable Power of Attorney: A First Line of Defense

A durable power of attorney (POA) allows you to appoint someone you trust to act on your behalf if you're unable to do so.

This individual (called your “agent”) can manage day-to-day tasks such as:

• Paying bills and signing checks

• Managing investment accounts

• Filing federal and state tax returns

• Collecting Social Security or VA benefits

• Accessing bank accounts or safe deposit boxes

What sets a durable POA apart from a standard one is that it remains in effect even if you become incapacitated.

If you’d prefer that the agent’s authority only begins after you’re declared legally incompetent, you can set up a springing power of attorney.

This version takes effect upon a specific trigger — often a written declaration from one or two physicians that you’re unable to manage your affairs.

🏛️ Revocable Living Trust: More Than Just Estate Planning

While many people associate trusts with tax savings, it’s important to clarify:

So why would a federal employee or retiree consider one?

✅ Key Benefits of a Revocable Living Trust:

• Probate Avoidance: Assets in the trust bypass probate court, saving your family time, legal hassle, and potential fees.

• Multistate Property Management: If you own property outside your home state, a trust can help avoid separate (ancillary) probate proceedings in those states.

• Incompetency Protection: If you become incapacitated, your successor trustee — someone you designate in advance — steps in immediately to manage your assets. No court approval required.

🧾 How to Set Up a Revocable Living Trust

If this sounds like the right fit for your retirement strategy, here’s how to get started:

1. Clarify the Purpose

Make sure the trust document clearly states:

• Its role in managing your assets during incapacity

• Your right to revoke or amend it while competent

2. Choose a Trustee and Successor Trustee

• You will act as the initial trustee while competent.

• Choose a successor trustee — a family member, close friend, or professional fiduciary — to take over if you’re incapacitated.

3. Draft the Trust Agreement

• Work with a qualified estate planning attorney.

• Define how incapacity is determined (e.g., one or two physician certifications).

• Grant your successor trustee the power to manage, invest, and distribute assets for your benefit.

4. Fund the Trust

• Retitle financial accounts, property deeds, and other major assets into the name of the trust.

• Remember: Assets not titled in the trust’s name will not be protected by it.

🔄 Keep Everything in Sync

A trust alone isn’t enough.

Be sure to coordinate your durable power of attorney, healthcare directives, and beneficiary designations (including on your TSP and life insurance) to ensure all your documents work together.

And finally, don’t file and forget. Life changes — so should your documents.

A good rule of thumb: review your estate plan annually, perhaps during tax season, to confirm everything still reflects your wishes.

Until next time,
—FWR